LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 
Class 


A    PRACTICAL    TREATISE 


—  ON  TIIK 


Business  of  Banking 


—  AND  - 


Commercial  Credits 


J.     B.     DURYEA 


LECTURER  ON  FINANCE,  BANKING,  COMMERCIAL  LAW,   AND  MKRCANTILE  CREDITS,   IN    HK.II- 

LAND  PARK  COLLEGE,  DES  MOINES.  IOWA,  AUTHOR  OF  "How  TO  Do  BUSINESS 

WITH  A  BANK,"  "THE  ART  OF  WRITING  LETTERS,"  ETC. 


FOURTH     EDITION 


DES    MOINES,     IOWA 

J.    B.   DURYEA,    PUBLISHER 
i894 


OF  THE 

UNIVERSITY 

OF 


GENERM 


COPYRIGHT,   1892, 

BY 
J.    B.    DURYEA 


PRINTED    AND    BOUND    BY 

WATTEKS-TALBOTT  PRINTING  CO. 

DES   MOINES. 


TO 

HILL    M.    BELL, 

PROFESSOR  OF  RHETORIC  AND  POLITICAL  SCIENCE, 
LINCOLN   NORMAL  UNIVERSITY, 

WHOSE  EMINENT  AND  HONORABLE  SUCCESS  AS  A  RHETORICIAN- 

HAS  BEEN  ATTAINED  BY 
INDOMITABLE  ENERGY  AND  CONSPICUOUS  ABILITY, 


JBottk  fe 

As  A  TOKEN  OF  THE  AUTHOR'S  REGARD  FOR  His  FRIENDSHIP 

AS  WELL  AS 

FOR  HIS  INVALUABLE  ASSISTANCE  IN  CRITICALLY  READING   i  HI- 
MANUSCRIPT  OF  THIS  VOLUME. 


1 08056 


PREFACE. 

The  author  of  a  book  is  expected  to  indulge  in  that  system 
of  literary  apologetics  known  as  preface  writing.  The  neces- 
sity for  this  may  sometimes  exist,  though  quite  often  enough 
the  utility  is  not  apparent.  Sometimes  the  apology  is  for 
the  author's  intrepidity  in  presenting  his  work  to  the  public, 
or  for  his  lack  of  ability  to  do  the  subject  justice,  sometimes 
it  is  for  the  imperfections  of  the  work  itself. 

But  books  are  judged  by  what  they  are  and  not  by  what 
they  ought  to  be.  No  lame  excuse  can  atone  for  a  bad  per- 
formance and  no  plea  be  necessary  for  a  good  one.  I  will  not 
apologize  for  that  perfection  I  do  not  and  cannot  possess, 
and  will  only  add  a  few  words  by  way  of  explanation. 

For  some  years  I  have  been  of  the  opinion  that  the  condi- 
tion of  the  commercial  world  would  be  much  improved  if 
business  men  had  a  more  comprehensive  knowledge  of  the 
fundamental  principles  of  banking  and  mercantile  credits. 
The  banker  is  the  criterion  of  business  men.  His  methods 
and  mode  of  doing  business  exemplify  the  very  besi  business 
principles.  That  a  knowledge  of  these  methods  and  principles 
of  business  will  be  of  benefit  to  every  business  man  is  self- 
evident.  Every  man,  no  matter  what  his  calling,  should 
understand  the  business  of  banking.  Such  knowledge  will 
not  only  enable  him  to  obtain  valuable  assistance  and  many 
favors  at  the  hands  of  his  bankers,  but  the  fundamental  prin- 
ciples of  business  as  here  taught  will  enable  him  to  carry  his 
own  affairs  to  a  higher  degree  of  perfection- and  profit.  This 
book  is  as  much  lor  the  merchant  as  for  the  banker. 


ii  PREFACE. 

In  the  part  of  this  book  devoted  to  credits  the  business  man 
will  find  a  guide  that  will  enable  him  to  trust  out  his  goods  to 
those  who  will  pay  for  them.  It  will  teach  those  not  engaged 
in  business  to  conduct  themselves  in  such  a  manner  as  to 
merit  the  confidence  and  thereby  the  credit  favors  of  the  busi- 
ness community. 

I  have  incorporated  the  principles  of  banking  and  credits 
in  as  few  words  as  consistent  with  a  proper  and  comprehen- 
sive elucidation  of  the  subject-matter,  and  have  aimed  to 
produce  a  work  that  would  be  practical  and  useful.  I  have 
profited  largely  by  the  writings  of  others,  and  it  is  only  justice 
that  I  hereby  acknowledge  my  indebtedness  to  them. 

In  writing  the  portion  devoted  to  banking  I  have  received 
much  aid  from  Albert  S.  Bolles'  books,  as  follows  :  "  Practical 
Banking,"  "  Bank  Officers,  their  Authority  and  Liabilities," 
"Banks  and  their  Depositors"  and  "The  National  Bank  Act." 
Much  valuable  aid  has  been  obtained  from  "Methods  and 
Machinery  of  Practical  Banking,"  by  Claudius  B.  Patten; 
"Practical  Banking,"  by  James  W.  Gilbart;  "The  Laws  of 
Banks  and  Banking,"  by  J.  T.  Morse,  Jr.;  "Banking  Laws," 
by  W.  S.  Paine;  "The  Elements  of  Banking,"  by  H.  D.  Mc- 
Leod ;  "Philosophy  of  Joint-Stock  Banking,"  by  G.  M.  Bell; 
"  History  of  the  Bank  of  England,"  by  J.  Francis;  "  Principles 
of  Banking,"  by  T.  Hankey;  "  Currency  and  Banking,"  by  B. 
Price ;  and  "  Theory  of  Money  and  Banks,"  by  G.  Tucker. 
Among  a  great  number  of  other  works  that  have  been  con- 
sulted, the  following  deserve  mention  in  this  place  :  "  Money 
and  Legal  Tender,"  by  H.  R.  Linderman;  "History  of  Ameri- 
can Currency,"  by  Wm.  G.  Sumner;  "Silver  and  Gold,"  by  S. 
Dana  Horton;  "Law  Manual  for  Notaries  and  Bankers,"  by 
W.  B.  Wedgwood  and  I.  S.  Homans;  "  Principles  of  Eco- 
nomic Philosophy,"  by  Van  Buren  Denslow.  Besides  these  1 
have  received  valuable  aid  from  V.  F.  Newell,  cashier  of  the 
Des  Moines  National  Bank,  Des  Moines,  Iowa,  and  many 
others  to  whom  due  credit  is  given  in  the  footnotes. 


PREFACE.  iii 

In  writing  the  part  devoted  to  mercantile  credits,  I  ac- 
knowledge aid  received  from  "Whom  to  Trust,"  by  P.  R. 
Earling,  "The  Theory  of  Credit,"  by  H.  D.  McLeod,  and 
the  works  of  John  S.  Mill,  J.  McCulloch,  J.  Cairus,  and  several 
others,  on  Political  Economy.  I  am  also  indebted  to  the 
editor  of  "  Bradstreets,"  for  much  valuable  information  regard- 
ing failures,  mercantile  agencies,  etc.  Besides  these,  the  lead- 
ing magazines,  financial,  banking  and  business  papers  and 
periodicals  have  been  consulted,  and  I  hereby  acknowledge 
my  indebtedness  to  them  all. 

I  wish  also  to  express  my  feeling  of  obligation  to  President 
O.  H.  Longwell,  of  Highland  Park  College,  for  the  words  of 
encouragement  which  he  has  given  me  during  ,the  year's  work 
of  preparing  this  volume,  and  for  his  many  helpful  suggestions. 

The  primary  object  of  the  topical  analysis  at  the  beginning 
of  each  chapter  is  for  the  student  to  refer  to  during  recita- 
tions, when  the  book  is  used  as  a  text  book.  I  have  purposely 
made  these  short  so  as  to  give  the  student  a  hint  of  the  sub- 
ject rather  than  to  tell  him  the  full  contents  of  the  topic. 

The  National  Bank  Act,  given  in  Chapter  III.,  is  taken 
from  the  Revised  Statutes  of  the  United  States.  I  have 
eliminated  all  technicality  and  have  endeavored  to  give  the 
thought  in  clear,  simple  language.  This  has  been  done  to 
enable  the  student  to  comprehend  it  readily. 

I  hope  that  the  work  may  prove  useful  and  beneficial  to 
many. 

Des  Moines,  Iowa,  J.  B.  DURYEA. 

Nov.  i,  1892. 


CONTENTS  * 


I' ART  I. 

THE  BUSINESS  OF  BANKING. 

CHAPTER    I. 
THK  ORIGIN  AM>  UTILITY  OK  HANKS 9 

CHAPTER  II. 
STATE  AND  PRIVATE.  HANKS  AND  BANKERS  21 

CHAPTER  111. 
THK  NATIONAL  HANK  ACT   26 

CHAPTER  IV. 
'I'm.  J'.OAKD  OF  DIRECTORS       66 

CHAPTER  V. 
THK  PKKSIDKNT 91 

CHAPTER  VI. 
THK  CASHIKR 99 

CHAPTER  VII.. 

THK  P\YING  TELLER 139 

CHAPTER  VIII. 
Tin;  KKCEIYING  TELLER , 221 

CHAPTER  IX. 
T  H  K  N  < )  i •  K  TELLER 237 

CHAPTER  X. 
THK  DISCOUNT  CLERK   243 

CHAPTER  XI. 

THK  COLLECTION  CLERK    252 

CHAPTER  XII. 

THE  MESSENGER  AND  THE  PORTER 267 

CHAPTER  XIII. 

THE  BOOKKEEPER 271 

CHAPTER  XIV. 
THK  CLEARING-HOUSE 277 

PART  II. 

COMMERCIAL  CREDITS. 

CHAPTER  I. 
THK  THKOKV  OF  CREDITS   295 

CHAPTER  II. 
LOSSES  MY  EAILURES'  303 

CHAPTER    III. 
MERCANTILE  AGENCIES  AND  THEIR  REPORTS 305 

CHAPTER  IV. 
AN  ANALYSIS  OK  THE  ELEMENTS  OK  BUSINESS  314 

CHAPTER  V. 
ANALYSIS  OF  MERCANTILE  REPORTS 372 

CHAPTER  VI. 
INVENTORY  VALUATIONS 3^3 

CHAPTER   VII. 
THK  ART  AND  PRACTICE  OK  ADVERTISING  3S& 


*A  complete  topical  index  appears  in  the  back  part  ot  this  Hook. 


PART 


THE  BUSINESS  OF  B 


A  PRACTICAL  TREATISE 

ON 

THE  BUSINESS  OF  BANKING. 


CHAPTER  I. 

THE  ORIGIN  AND  UTILITY  OF  BANKS. 


^  i.  Definition. 

2.  Early  usage. 

3.  Origin  of  modern  banking. 

4.  Origin  of  the  word  bank. 

5.  First  banks. 

6.  The  Bank  of  Venice. 

7.  The  Bank  of  Genoa. 

8.  The  Bank  of  Amsterdam. 

9.  The  Bank  of  England. 

10.  The  Bank  of  North  America. 

11.  The  Bank  of  the  United  States. 

12.  The  Wild-cat  Banks. 


§  13.   Utility  of  banks. 

1.  Safe  deposit  of  money. 

2.  Banks  are  liable  for  lost  or 

stolen  money. 

3.  Loaning  money. 

4.  Paying  interest. 

5.  Paying  by  checks. 

6.  Risk  of  counterfeit. 

7.  Checks  as  proof  of  payment. 

8.  Remitting  money. 

9.  Influence  on  the  morals  of 

society. 

14.  Expenses,  profits,  etc. 

15.  Kinds  of  banks. 


§  i.  Definition.  A  bank  is  an  establishment  having  power 
to  receive  deposits,  discount  business  paper,  loan  and  remit 
money,  pay  checks  and  make  collections.  It  may  also  deal 
in  notes,  foreign  and  domestic  bills  of  exchange,  coin,  bullion, 
and  credits.  A  bank  is  usually  an  incorporated  institution. 

If  a  man  uses  his  own  money  to  buy  notes,  or  exchange,  or 
if  he  borrows  money  from  another  to  buy  notes,  etc.,  he  is 
not,  in  a  proper  sense,  a  banker.  To  be  a  banker  he  must 
have  a  regular  place  of  business  where  he  receives  the  money 
of  others  on  general  deposit,  and  makes  use  of  this  joint  fund 
for  the  purposes  named. 


io  THE  BUSINESS  OF  BANKING. 

In  a  practical  sense,  a  bank  is  a  place  where  deposits  are 
received  and  paid  out  on  checks,  and  money  is  loaned  on 
security.  If  the  Government  gives  it  power  to  issue  its  own 
notes  as  money,  it  is  called  a  "bank  of  issue." 

§  2.  Early  Usage.  Originally  banks  were  used  only  as 
places  for  the  safe  keeping  of  money,  bullion,  plates,  or  the  like, 
which  was  left  unused  and  unproductive  in  the  vaults  of  the 
bank  until  the  depositor  should  call  for  it.  The  Bank  of  Am- 
sterdam was  a  notable  instance  of  this  class  of  banks.  The 
coin  or  bullion  was  deposited  and  a  receipt  taken  for  its  return. 
The  depositors  defrayed  the  expenses  of  the  management,  for 
which  they  received  no  return  except  the  knowledge  that 
their  wealth  was  secure. 

In  modern  times  the  demand  for  money,  by  borrowers,  has 
become  so  great,  and  the  chances  of  lending  it  safely,  so 
numerous,  that  banks  of  the  Amsterdam  class  no  longer  exist. 

§  3.  Origin  of  Modern  Banking.  The  origin  of  modern 
banking  may  be  traced  to  the  money  dealers  of  Florence,  who 
were  in  high  favor  as  lenders  of  money  and  receivers  of  de- 
posits, in  the  fourteenth  century. 

The  business  of  banking  now  combines  receiving  with  lend- 
ing money — in  fact,  the  banker  lends  out  the  greater  portion 
of  his  deposits. 

The  advantages  accruing  to  society,  generally,  from  the 
business  of  banking  is  almost  beyond  estimate.  The  banker 
receives  deposits,  great  and  small,  from  private  individuals,  in 
whose  coffers  it  is  useless  and  unproductive,  and  lends  it  to 
those  who  can  use  it  in  their  business  but  could  not  other- 
wise obtain  it.  Thus,  money  deposited  with  a  banker  becomes 
at  once  useful  and  productive,  and  the  direct  advantage  aris- 
ing from  such  transactions  are  considerable.  Borrowing  this 
money,  the  manufacturer  may  buy  raw  material  and  produce 
food  and  clothing  and  so  give  employment,  and  therefore  the 
means  of  livelihood,  to  a  multitude  of  individuals.  In  thir 
way  commodities  reach  the  markets,  are  resold  and  soon 


THE  ORIGIN  AND  UTILITY  OF  BANKS.  U 

turned   to  some  use,  thus  stimulating  the  production  of  other 
commodities. 

Of  course  besides  the  money  of  others,  a  banker  has  his 
own  money  to  lend.  This  is  called  his  capital.  Men  would 
hesitate  to  deposit  money  with  a  man  that  possessed  none  of 
his  own.  If  he  makes  bad  debts  he  can  use  his  capital  to 
replace  the  deposits  thus  lost. 

$  4.  Origin  of  the  Word  Bank.  The  Jews  of  Lombardy, 
Italy,  are  supposed  to  be  the  first  to  make  a  business  of  deal- 
ing in  money,  so  that  anciently  the  word  Lombard  was  used 
to  designate  a  banker  or  money  lender.  The  Lombards  had 
benches  or  tables  upon  which  they  exchanged  money  and 
bills.  These  benches  were  called  bancos,  and  this  word 
banco  is  supposed  to  be  the  original  of  the  word  bank.  When 
a  banker  failed,  his  bench  was  broken  by  the  people,  and  he 
was  called  a  bankrupt  (banco — bench  or  bank  ;  ruptere — to 
break — a  broken  bench  or  bank).  McLeod,  in  his  "  Prin- 
ciples of  Economic  Philosophy,"  says:  "The  true  or- 
igin of  banco  is  a  heap,  or  mound,  and  this  word  was  meta- 
phorically applied  to  signify  a  common  fund,  or  joint  stock, 
formed  by  the  contributions  of  a  multitude  of  persons."  This 
is  probably  the  proper  derivation  of  the  word. 

§  5.  First  Banks.  As  might  be  expected,  the  date  of  the 
opening  of  banks  and  the  first  issuance  of  paper  money  seem 
to  be  coeval  with  that  of  the  first  coinage  of  money.  The 
Chinese  are  said  to  have  record  of  the  issue  of  "flying 
money, "  or  "  convenient  money, ' '  as  early  as  2697  B.  C.  One 
of  these  bank  bills  bearing  the  date  of  1399  B.  C.,  and  having 
upon  it  the  name  of  the  bank,  the  number,  the  place  of  issue, 
the  value,  and  the  signature  of  the  proper  bank  officials,  is  in 
the  Asiatic  Museum  at  St.  Petersburg. 

A  Babylonian  tablet  of  banking  transactions  of  601  B.  C. 
is  in  the  Metropolitan  Museum  of  Art,  at  New  York. 

§  6.  The  Bank  of  Venice.  It  is  a  remarkable  fact  that 
the  first  bank  ever  established  had  a  success  unequaled  in 


12  THE   BUSINESS  OF   BANKING. 

later  times.  The  Bank  of  Venice  was  established  in  1171 
and  was  the  earliest  banking  association  of  which  there  is 
any  authentic  account.  The  Republic  being  in  a  strained 
condition  on  account  of  the  numerous  wars  being  carried  on, 
the  reigning  duke,  in  order  to  raise  sufficient  money  to  pro- 
ceed with  the  crusade,  compelled  each  citizen  to  contribute  a 
hundredth  part  of  his  possessions  to  the  state,  for  which  he 
received  four  or  five  per  cent,  interest.  This  is  the  first  ap- 
pearance of  a  funded  public  debt.  Some  of  the  most  opu- 
lent citizens  formed  themselves  into  a  "Chamber  of  Loans" 
and  thus  began  doing  business  with  the  state,  mortgaging 
the  public  revenues  to  secure  the  interest,  paying  the  interest, 
and  transferring  the  stock.  In  exchange  for  their  money,  the 
people  received  certificates  of  stock  which  could  be  sold  and 
transferred  in  whole  or  in  part.  The  government  finding  that 
these  transfers  were  in  demand,  kept  reducing  the  interest 
until  finally  no  interest  at  all  was  paid.  Though  termed  a 
bank,  its  issues  were  really  government  paper,  and  its  busi- 
ness was  carried  on  solely  for  the  benefit  of  the  public  treas- 
ury." Thus  the  first  bank  or  system  of  public  debts  was 
established  through  a  forced  loan,  and  it  continued  until  1797, 
when  it  fell  with  the  city  itself  at  the  conquest  of  Napoleon. 

§  7.  The  Bank  of  Genoa.  In  1407  the  Bank  of  Genoa 
was  formed  under  the  title  of  the  "Chamber  of  St.  George." 
It  owed  its  existence  to  conditions  similar  to  those  of  the 
Bank  of  Venice,  and  was  the  first  to  issue  circulating  notes. 
They  were,  however,  for  large  transactions  and  passed  only 
by  indorsement. 

§  8.  The  Bank  of  Amsterdam.  This,  the  first  bank  or- 
ganized for  the  promotion  of  commerce,  was  founded  January 
31,  1609.  The  commerce  of  Amsterdam  became  so  varied 
that  some  regulations  were  badly  needed,  and  the  magistrates, 
under  proper  authority,  declared  themselves  the  perpetual 


aMoulton's  Science  of  Money,  page  66. 


THE  ORIGIN  AND  UTILITY  OF  BANKS.  13 

cashiers  of  the  populace,  and  decreed  that  all  payments 
above  600  gilders,  and  all  bills  of  exchange,  should  be  made 
at  the  bank.  Merchants  were  now  compelled  to  open  ac- 
counts with  it  ;  and  the  benefit  to  Holland  was  so  great  that 
bank  money  was  soon  at  a  premium. 

$  9.  The  Bank  of  England.  The  Bank  of  England  was 
founded,  by  a  charter  granted  by  William  and  Mary,  July  27, 
1694,  for  a  period  of  twelve  years,  terminable  on  a  year's 
notice.  The  capital  originally  subscribed  was  £1,200,000 
($5,800,000)  in  consideration  of  loaning  the  government  the 
amount  at  eight  per  cent,  interest.  This  is  now  the  strongest 
and  most  wealthy  bank  in  the  world.  It  was  the  first  to 
issue  notes  payble  to  bearer  on  demand. 

The  bank  of  England  influences  commerce  and  credit  over 
all  the  world.  The  bank  building  itself  is  a  plain,  unpreten- 
tious granite  building  of  one  story  in  height,  and  presenting  a 
prison-like  appearance,  having  no  windows  to  the  outside 
world.  Inside  it  is  a  town  of  itself,  made  up  of  many  build- 
ings, courts  and  apartments,  all  of  which  are  utilized  in  car- 
rying on  the  different  branches  of  the  establishment.  Under- 
neath are  the  vaults,  in  which  are  stored  the  securities,  gold 
and  bullion.  The  staff,  from  highest  to  lowest,  consists  of 
about  one  thousand,  and  the  system  of  business  is  so  method- 
ical, there  seems  to  be  a  crowd  nowhere,  and  no  one  ever  in 
a  hurry.  Strangers  visiting  the  bank  are  treated  with  the 
utmost  courtesy,  and  if  provided  with  an  order,  which  is  easily 
obtained,  are  shown  over  the  principal  parts. 

It  is  really  two  banks  in  one,  the  note-issue  department 
being  entirely  separated  from  that  of  the  general  business, 
and  making  its  own  distinct  reports.  The  note  issues  are 
based  on  the  government's  indebtedness  to  the  bank,  and  can 
be  indefinitely  extended  by  a  pledge  of  an  equal  amount  of 
gold  and  bullion  lodged  in  the  issue  department.  These 
notes  are  printed  on  the  bank's  premises  upon  paper  manu- 
factured by  a  secret  process,  and  under  the  bank's  direction. 


14  THE  BUSINESS  OF  BANKING. 

They  are  issued  in  denominations  of  from  £5  to  £1,000. 
All  transactions  of  less  than  £5  must  be  made  in  gold  and 
silver.  They  are  a  legal  tender  for  the  payment  of  all  debts 
other  than  the  bank's  own.  The  same  note  is  never  paid  out 
a  second  time,  but  cancelled  and  replaced  by  a  new  one. 

The  banking  department  is  based  upon  a  capital  of  $80,- 
000,000  ;  is  the  depository  of  all  government  moneys,  and  the 
agent  which  transacts  all  its  financial  business. 

It  has  no  regular  rate  of  interest,  but  as  soon  as  exchanges 
run  against  the  bank  and  more  gold  is  demanded  than  comes 
in,  the  rate  of  interest  is  raised  and  this  will  be  further  added 
to  until  the  tide  of  specie  sets  to  the  bank.  This  being  ac- 
complished, the  bank  becomes  strong  again  and  the  rate  is 
lowered.  Whatever  this  rate  may  be,  fixes  also  the  rate  for 
other  banks,  and  becomes  the  adopted  rate  in  private  trans- 
actions. It  has  not  always  stemmed  the  tide  of  panic,  and 
has  had  to  succumb  and  suspend  specie  payments  upon  more 
than  one  occasion  in  its  history,  but  being  so  directly  identi- 
fied with  the  government  the  latter  has  always  protected  it. 

Its  stock  seldom  changes  hands,  and  its  dividends  average 
about  eight  per  cent,  for  the  last  one  hundred  years. 

The  government  pays  it  a  stipulated  sum  for  being  the 
responsible  agent  for  the  transfer  of  consols  and  the  payment 
of  the  interest  thereon.  The  public  debt  of  Great  Britain  is 
about  three  billion  five  hundred  millions  of  dollars,  and  the 
bank  receives  for  its  work  $150,000  for  every  five  hundred 
millions  up  to  three  thousand  millions  and  a  lower  rate  for  the 
remainder.  From  this  alone  its  income  in  round  numbers  is 
$1,000,000  a  year. 

In  its  dealings  with  its  competitors  it  has  borne  the  reputa- 
tion of  being  just,  leaning  to  the  side  of  generosity,  and  but 
one  instance  is  recorded  where  it  deliberately  attempted  an- 
other's ruin.  Early  in  the  eighteenth  century  there  was  a 
private  banking  house,  Childs  &  Co.,  whose  business  became 
so  large  and  prosperous  as  almost  to  rival  the  bank.  The 


THE  ORIGIN  AND  UTILITY  OF  BANKS,  15 

bank  set  secretly  to  work  to  collect  and  hoard  Childs  &  Co.'s 
obligations,  until,  having  accumulated  a  large  amount,  they 
would  present  all  at  once  and  demand  payment,  thereby 
forcing  them  into  insolvency.  A  few  days  before  the  expected 
event  was  to  transpire,  Childs  &  Co.  were  secretly  advised  by 
some  friend.  As  quietly  they  sought  the  Duchess  of  Marl- 
borough  and  acquainted  her  with  the  facts.  The  Duchess, 
sympathizing  with  Childs  &  Co.,  gave  them  her  check  on  the 
Bank  of  England  for  $3,500,000.  This  check  Childs  &  Co. 
laid  away  in  their  vaults  and  awaited  developments.  A  few 
days  later,  the  bank's  messenger  presented  himself  at  Childs  & 
Co.'s  counter  with  three  millions  of  their  obligations  and  de- 
manded the  money.  While  one  of  Childs  &  Co.'s  clerks  was 
checking  off  the  items,  another  was  sent  to  the  bank  with  the 
check  of  the  Duchess.  On  the  latter's  return  with  the  money, 
the  messenger  was  handed  his  $3,000,000  in  the  bank's  own 
notes,  and  a  new  account  with  the  live  Duchess  opened  on 
their  books. 

The  bank  is  managed  by  a  governor,  deputy,  and  board  of 
twenty-four  directors,  each  of  whom  retires  in  turn  and  at 
stated  intervals.  These  are  selected  from  the  first  rank  of 
business  men,  who  have  large  interests  at  stake  in  the  welfare 
of  the  country,  and  hence  their  administration,  as  a  rule,  has 
tended  toward  the  good  of  all.  While,  on  the  one  hand,  the 
bank  has  always  been  the  sheet  anchor  of  the  government, 
on  the  other,  it  has  afforded  the  people  a  stable  currency,  and 
secured  them  a  low  rate  of  interest. 

§  10.  The  Bank  of  North  America.  Robert  Morris,  a 
distinguished  financier  and  a  representative  of  Pennsylvania 
in  Congress,  was  the  leader  in  the  establishment  of  the  Bank 
of  North  America,  the  first  authorized  bank  in  the  United 
States.  The  credit  of  Congress  and  the  State,  from  the  fact 
that  they  had  issued  the  bulk  of  the  currency  in  bills  of  credit, 
was  almost  exhausted,  this  currency  being  so  depreciated  in 
value  that  it  was  almost  impossible  to  procure  the  necessary 


1 6  THE  BUSINESS  OF  BANKING. 

supplies  for  the  support  of  the  army.  The  soldiers  became 
dissatisfied  and  it  was  feared  the  cause  for  which  the  people 
had  fought  would  be  abandoned.  The  aid  furnished  by  this 
bank  infused  new  vigor  into  the  people  and  proved  thereby  a 
powerful  auxiliary  in  establishing  American  independence. 

On  June  17,  1780,  a  meeting  of  citizens  of  Philadelphia 
was  held  to  devise  plans  for  raising  money  necessary  for  the 
support  of  the  revolutionary  army.  A  resolution  was  adopted 
to  open  a  security  subscription  to  the  amount  of  $300,000, 
articles  of  incorporation  were  adopted,  and  at  the  close  of 
1781  the  bank  was  established  with  a  recommendation  by 
Congress  that  the  several  States  should  grant  charters  to  the 
organization. 

§  1 1.  The  Bank  of  the  United  States.  The  first  Bank  of 
the  United  States  was  founded  by  Alexander  Hamilton  and 
incorporated  February  25,  1791,  to  continue  twenty  years. 
The  capital  was  fixed  at  $10,000,000,  $2,000,000  being  con- 
tributed by  the  Government,  to  be  refunded  in  ten  equal 
installments.  The  notes  of  the  bank  were  legal  tender  for 
all  debts  due  to  the  United  States.  This  bank  was  intended 
to  be  to  the  United  States  what  the  Bank  of  England  is  to  Eng- 
land, but  when  the  charter  expired  in  181 1  it  was  not  renewed. 

On  April  10,  1816,  a  Second  Bank  of  the  United  States, 
with  a  capital  of  $35,000,000,  was  chartered,  and  when  the 
charter  expired  in  1836,  Congress  refused  to  renew  it.  If  a 
similar  association  were  to  be  established  now,  bearing  a 
like  porportion  to  the  wealth  of  the  country,  its  capital 
would  be  over  $600,000,000.  The  contemplation  of  such  an 
enormous  power,  placed  in  the  hands  of  any  body  of  men 
gives  us  a  just  appreciation  of  the  conduct  of  President  Jack- 
son in  his  attitude  toward  this  bank.  He  realized  that  such 
an  institution,  growing  with  the  growth  of  the  nation,  would 
surely  tend  to  corruption,  while  its  unlimited  power  might  be 
directed  to  interfere  with  the  independence  of  Congress  and 
with  the  liberty  of  the  people. b 

^'Elaine's  Twenty  Years  in  Congress.  I.,  418. 


THE  ORIGIN  AND  UTILITY  OF  BANKS.  17 

£  12.  The  Wild-cat  Banks.  What  were  known  as  the 
"Wild-cat"  banks  were  the  old  State  Banks,  organized  under 
charter  of  the  States,  by  private  individuals.  They  were 
permitted  to  issue  currency  to  the  amount  of  their  alleged 
capital.  To  be  sure,  they  put  up  securities,  but  these  were 
bonds  of  the  State,  cities,  towns,  private  corporations,  or 
even  mortgages  on  real  estate.  Often  the  securities  were 
worthless  and  in  many  cases  the  capital  was  paid  in  by  prom- 
issory notes.  This  wholesale  issue  of  currency  soon  drove 
specie  out  of  the  field.  The  bank  notes  began  to  fluctuate  in 
value,  and  the  banks  issuing  them  were  designated  "wild-cat 
banks."  At  the  outbreak  of  the  rebellion  in  1861  the  greater 
part  of  them  collapsed  and  the  circulation  of  the  rest  of  them 
was  retired,  and  the  national  banking  system  was  devised  to 
take  their  place. 

§  13.  Utility  of  Banks.  A  great  deal  more  might  be 
said  about  the  early  history  of  banks  and  banking,  but  what 
we  have  said  will  give  the  student  a  fair  idea  of  the  early 
beginnings.  If  he  wishes  to  pursue  the  subject  further,  many 
books  treating  the  matter  fully  can  be  obtained. 

A  bank's  functions  are  : 

i.  A  bank  is  useful  as  a  place  for  the  safe  deposit  of 
money.  If  individuals  were  in  the  habit  of  keeping  large 
sums  of  money  at  their  homes,  robbery  and  burglary  would 
multiply  with  amazing  rapidity  and  few  houses  would  be  free 
from  the  invasions  of  outlaws. 

Men  have  tried  keeping  money  in  about  every  conceivable 
manner.  Every  one  has  heard  of  the  Iowa  farmer  who 
received  his  back  pension  of  three  thousand  dollars  in  gold, 
and  not  being  willing  to  trust  the  "blasted  thieving  banks" 
with  it,  concluded  to  put  it  in  an  oyster  can  and  plant  the 
can  beneath  a  large  white  bull  dog's  kennel.  He  buried  it 
nearly  a  foot  under  ground  and  moved  the  kennel  over  the 
grave.  The  dog  was  as  savage  as  could  be  desired,  and 
took  to  his  new  role  with  evident  satisfaction.  About  six 


1 8  THE  BUSINESS  OF  BANKING. 

months  afterward  the  old  man  wanted  some  money  and  so 
concluded  to  draw  on  his  original  bank.  He  found  the  can, 
but,  to  his  utter  dismay,  it  contained  nothing  but  dirt.  Some 
one  had  relieved  him  of  the  gold. 

A  lady  was,  during  the  summer,  in  the  habit  of  using  a 
large  heating  stove  as  a  bank.  One  cool  morning  in  the  fall 
her  son  struck  a  match  to  the  waste  paper  which  had  been 
stuck  in  the  stove,  and  thus  burned  all  the  money  to  ashes. 

2.  If  money  is  deposited  with  a  bank  and  lost,  the  bank  is 
responsible  whether  negligent  or  not.     Money  deposited  with 
a  bank  becomes  the  property  of  the  bank,  and  is  therefore  a 
debt.      A  deposit  is  a  loan  to  the  bank,  and  if  it  is  lost  or 
stolen  the  bank  is  not  relieved  from  the  obligation. 

3.  One  of  the  great  benefits  which  banks  render  to  the 
people  is  that  of  loaning  money  to  those  engaged  in  manu- 
factures, commerce  and  business,  and  who  could  not  carry  on 
their  enterprises  without  the  use  of  outside  capital.     Com- 
merce and  trade  would  be  inevitably  crippled  if  no  money 
could  be  borrowed. 

4.  By  paying  interest  on  deposits  the  owners  of  money 
acquire  greater  profit  from  their  capital  than  if  there  were  no 
banks.      Capital  that  would  otherwise  lie  idle  and  profitless, 
is  deposited  with  bam*s  and  not  only  increases  the  gains  of 
the  owner  but  is  loaned  out,  and  while  increasing  the  profits 
of  the  bank,  also  enables  the  borrower  to  carry  his  business  to 
a  much  higher  degree  of  perfection  and  profit. 

5.  Without  the  use  of  checks  the  large  payments  of  the 
business  world  could  not    possibly  be   made.      To   stop  to 
count  the  money  out  to  the  seller  in  many  of  the  large  trans- 
actions would  entail  such  an  enormous  loss  of  valuable  time 
that  business  would  be  seriously  injured.     Besides   there  is 
not  enough  money  in  the  United  States  to  do  the  business  of 
a    single   one  of  our    great    cities.      Men    make    their    own 
money,     millions    of     dollars    every    day,    in    the    form    of 
checks,   and   destroy  it    at   night.      By  the    intervention  of 


THE  ORIGIN  AND  UTILITY  OF  BANKS.  ig 

checks,  large  payments  can  be  made  without  counting  a  dol- 
lar of  money. 

6.  While   some  risk  attends  the  use  of  checks,  yet  with 
money  there  is  the  danger  of  taking  counterfeits,  raised,  light 
weight,  split   or  otherwise   imperfect   coin.      The   danger  of 
error  is  also  materially  lessened. 

7.  There  are  many  instances  where  bills  have  been  paid  a 
second  time  because  no  proof  or  evidence  of  payment  could 
be  produced.      Many  people  do  not  take  receipts  when  pay- 
ments are  made,  and  if  they  do,  often  lose  them,  but  when 
bills    are   paid   by  checks  they  are   returned   to  the  drawer 
and  serve  as  a  receipt.     A  receipt  is  evidence  of  payment,  a 
cancelled  check  is  positive  proof  of  payment. 

8.  Probably  the  most  important  function  of  banks  is  their 
system  of  exchange.     When  money  is  sent  from  one  place  to 
another  it  entails  heavy  costs  of  transportation,  besides  the 
risk  of  loss  by  robbery  or  otherwise,  and  the  loss  of  the  use  of 
the  money  during  the  process  of  transportation.      But  by  the 
mediation  of  banks,    the  debt  is  transferred  and  the  money 
kept  in  active  circulation  and  all  risks  and  expense  of  trans- 
mission avoided. 

9.  •'  Banking,"  says  James  W.  Gilbart,  an  eminent  English 
author,0  "exercises  a  powerful  influence  upon  the  morals  of 
society.       It   tends   to   produce   honesty   and   punctuality   in 
pecuniary   engagements.       Bankers,   for   their   own    interest, 
always  have  a  regard  to  the  moral   character  of  the  party 
with  whom  they  deal  ;    they  inquire  whether  he  be  honest  or 
tricky,  industrious  or  idle,  prudent   or  speculative,  thrifty  or 
prodigal,  and  they  more  readily  make  advances  to  a  man  of 
moderate    property  and  good  morals  than  to  a  man  of  large 
property  but   of    inferior   reputation.       There   are   many   in- 
stances of  persons  having  risen  from  obscurity  to  wealth  only 
by  means  of  their  moral  character,  and  the  confidence  which 
that  character  produced  in  the  mind  of  their  banker.     It  is 

°Gilbart  on  Practical  Banking,  pp.  7  and  8. 


2o  THE  BUSINESS  OF  BANKING. 

not  merely  by  way  of  loan  or  discount  that  a  banker  serves 
such  a  person.  He  also  speaks  well  of  him  to  those  persons 
who  may  make  inquiries  respecting  him,  and  the  banker's 
good  opinion  will  be  the  means  of  procuring  him  a  higher 
degree  of  credit  with  the  parties  with  whom  he  trades.  These 
effects  are  easily  perceivable.  It  is  thus  that  banks  perform 
the  functions  of  public  conservators  of  the  commercial  virtues. 
From  motives  of  private  interest  they  encourage  the  indus- 
trious, the  prudent,  the  punctual,  and  the  honest ;  while  they 
discountenance  the  spendthrift  and  the  gambler,  the  liar  and 
the  knave.  They  hold  out  inducements  to  uprightness,  which 
are  not  disregarded  by  even  the  most  abandoned.  There  is 
many  a  man  who  would  be  deterred  from  dishonesty  by  the 
frown  of  a  banker,  though  he  might  care  but  little  for  the 
admonition  of  a  bishop." 

§  14.  Expenses,  Profits,  etc.  The  disposable  means  of  a 
bank  is  the  money  which  the  dealers  deposit,  the  money  paid 
in  by  the  stockholders,  the  notes  it  can  circulate  and  the 
money  received  during  the  course  of  transmission. 

The  expenses  of  a  bank  consist  of  rent,  salaries,  station- 
ery, postage,  taxes,  interest,  repairs,  etc.  The  profits  of  a 
bank  are  that  portion  of  its  total  gains  from  discount,  inter- 
est, collection,  exchange,  commission,  etc.,  which  exceed  its 
total  expenses. 

§  15.  Kinds  of  Banks.  There  are  several  kinds  of  banks, 
such  as  National,  State,  Savings,  and  Private  banks,  and 
Trust  companies.  A  full  discussion  of  each  will  be  found 
further  on. 


CHAPTER   II. 

STATE  AND  PRIVATE  BANKS  AND  BANKERS. 


§  16.     National  Banks. 

17.  State  Banks. 

18.  Wild-cat  and  Red-dog  Banks. 
iSa.   Conversion  at  the  outbreak  of 

the  rebellion. 

19.  Some  alleged  advantages. 


§  20. 

21. 
22. 
23- 
24- 
25- 


Number,  Capital  and  Deposits. 

Private  Banks  and  Bankers. 

Number,  Capital,  etc. 

Their  prestige. 

Changes. 

Details  of  management. 


§  1 6.  National  Banks.  The  National  Banking  System, 
which  is  treated  at  length,  in  this  work,  is  the  most  perfect 
and  the  most  satisfactory  system  of  banking  that  this  country 
has  ever  had.  In  fact,  the  wisdom  of  those  who  prepared 
the  National  Bank  Act  has  been  demonstrated  by  the  unpre- 
cedented success  of  the  banks  organized  under  it.  "No  other 
system  has  ever  issued  notes  circulating  at  par,"  says  the 
Comptroller  of  the  Currency,  "over  so  wide  an  area  of  country, 
absolutely  without  loss  to  holders  ;  nor  has  any  other  afforded 
such  complete  security  to  depositors  and  creditors." 

As  might  be  supposed,  there  are  some  objections  offered  to 
the  national  banks,  but  that  they  meet  the  necessity  of  the 
public  and  are  in  popular  favor  is  shown  by  the  constant 
increase  in  their  number  and  capital  as  exhibited  by  the 
Comptroller's  last  report.  By  this  report  (1893)  we  find  that 
1 19  new  banks  were  organized  during  the  year,  possessing  an 
aggregate  capital  of  $11,230,000.  The  number  of  national 
banks  doing  business  October  31,  1893,  was  3,796  with  a 
total  capital  of  $68  3,600,000 

§  17.  State  Banks.  The  old  State  Banks  were  organized 
under  a  special  charter  from  the  legislature  of  the  State,  the 
same  as  other  corporations  were  formed.  These  banks  were 
based  on  private  capital  but  were  authorized  by  the  State. 


22  THE  BUSINESS  OF  BANKING. 

Their  charters  usually  specified  the  amount  of  proposed  capi- 
tal, but  the  shareholders  often  paid  their  stock  by  promissory 
notes,  thus  putting  the  banks  in  rather  a  precarious  condition. 
They  were  organized  by  three,  five,  seven  or  more  persons, 
and  were  required  to  put  up  securities  to  an  amount  equal  to 
the  proposed  capital.  These  might  consist  of  bonds  of  the 
State,  or  of  cities,  towns  or  other  public  corporations,  and 
even  private  mortgages  on  real  estate  were  considered  suffi- 
cient ;  and  on  this  dubious  security  they  were  permitted  to 
issue  their  own  notes  which  were  to  circulate  as  money. 
Some  of  these  notes  were  for  small  amounts,  and  being  issued 
so  freely  they  soon  drove  specie  out  of  the  field,  until  but  little 
was  left,  and  that  little  was  passed  from  one  bank  to  another 
in  order  to  present  a  more  favorable  showing  when  the  in- 
spector came.  Many  times  the  man  with  the  specie  traveled 
only  a  little  in  advance  of  the  inspector. 

§  1 8.  There  was  no  way  provided  to  redeem  these  state 
bank  notes  in  coin.  The  security  was  so  precarious  that  the 
currency  soon  began  to  fluctuate  in  value.  The  banks  were 
designated  "wild-cat  banks."  Another  class  of  banks  was 
called  "red-dog  banks"  from  their  shifting  propensities,  being 
in  one  town  to-day  and  probably  setting  up  in  a  town  fifty 
miles  away  to-morrow 

§  iSa.  At  the  outbreak  of  the  rebellion  most  of  these 
banks  were  in  bad  repute  and  frauds  and  failures  were  fre- 
quent, causing  business  to  suffer  greatly.  The  need  of  better 
banking  laws  being  obvious,  Congress  devised  the  National 
Banking  System  to  supply  the  necessity.  A  great  many  of 
the  state  banks  now  collapsed,  but  the  greater  part  were 
converted  into  national  banks. 

In  1866  Congress  imposed  a  tax  of  ten  per  cent,  on  state 
bank  notes,  thus  causing  the  entire  state  bank  circulation  to 
be  retired,  so  that  now  the  only  banks  which  issue  notes  are 
those  conforming  to  the  National  Bank  Act,  approved  Feb. 
25,  1863. 


STATE  AND  PRIVATE   BANKS  AND  BANKERS.  23 

There  are  still  many  state  banks  organized  under,  and  con- 
forming to,  the  State  law,  and  they  are  conducted  in  about  the 
same  manner  as  before  the  war,  except  that  their  circulation 
has  been  withdrawn.  Much  of  the  internal  mechanism  of 
banks,  such  as  receiving  deposits,  making  collections,  loaning 
money,  etc.,  is  the  same,  or  similar,  in  state  and  national 
banks ;  i.  e.,  they  may  be  the  same.  One  great  point  of  dif- 
ference between  the  two  banks  is  that  one  issues  circulating 
notes  and  the  other  does  not.  Of  course  the  size  of  the  city 
or  town  in  which  the  bank  is  located  will  also  make  some 
difference;  other  differences  in  the  mode  of  doing  business 
may  exist  the  same  as  in  any  other  line  of  business. 

§  19.  There  are,  according  to  some  bankers,  some  points 
of  advantage  which  state  banks  have  over  national  banks, 
among  which  are  these:  they  may  certify  checks  in  excess  of 
the  amount  to  the  depositor's  credit ;  they  are  not  so  critic- 
ally examined,  and  are  not  generally  required  to  make  reports 
to  the  state  officials.  Some  consider  it  an  advantage  to  be 
able  to  use  more  freedom  in  their  affairs.  By  organizing 
state  banks  they  can  do  things  which  they  would  not  be 
allowed  to  do  under  the  National  Banking  System. 

§  20.  Number,  Capital,  etc.  According  to  the  report  of 
the  Comptroller  of  the  Currency,  for  1893,  the  number  of 
state  banks,  reporting  to  the  Comptroller,  is  3,579.  These 
have  a  combined  capital  of  $250,800,000,  and  individual 
deposits  amounting  to  $707,000,000. 

§  21.  Private  Banks  and  Bankers.  A  private  banker  is 
one  who  carries  on  the  business  of  banking  as  an  individual, 
in  the  same  way  as  individuals  or  partners  engage  in  any 
other  line  of  business.  Many  banks  organized  and  running 
as  state  banks  are  in  truth  no  more  than  private  banks ;  the 
capital  being  owned  by  one  or  two  individuals  with  only  a 
nominal  directorship.  This  is  often  resorted  to  in  order  to 
get  the  benefit  of  the  prestige  of  the  title  "bank."  and  to- 
secure  the  exemption  from  limited  liability. 


24  THE  BUSINESS  OF  BANKING. 

Private  banks  are  most  generally  formed  in  towns  or  vil- 
lages that  are  too  small  to  support  a  national  bank,  but  still 
feel  the  need  of  some  banking  facilities.  We  are  led  to  this 
conclusion  by  the  showing  in  the  Comptroller's  report.  The 
greater  part  of  the  capital  being  in  the  west — Iowa  leading 
with  $5,400,000.  In  the  thriving  west,  where  enterprise  and 
industry  is  the  greater  part  of  the  capital  of  the  people,  the 
conditions  are  most  favorable  for  the  establishment  and  sup- 
port of  private  banking  institutions. 

>$  22.  Number,  Capital,  etc.  The  number  of  private  banks 
is  given  by  the  Comptroller  as  being  848  and  their  com- 
bined capital,  $26,800,000,  and  the  amount  of  deposits  'is 
placed  at  $69  000,000.  Private  bankers  are  not  always  will- 
ing to  give  the  public  a  statement  of  their  business,  and  some 
absolutely  refuse  to  give  the  Comptroller  any  information  ;  so 
that  the  figures  we  have  given  are  about  4,025  less  than  the 
number  in  existence.  Iowa  alone  has  490. 

§  23.  Their  Prestige.  The  private  banker  must  gain  the 
public  confidence  by  his  wealth,  character,  honesty  and  trust- 
worthiness. This, of  course,  brings  greater  personal  restraint 
and  greater  responsibility  to  bear  on  the  manager  than  is 
expected  in  a  state  or  a  national  bank.  They  are,  of  course, 
not  subject  to  examination  by  the  State  or  Federal  Gov- 
ernment, but  every  dealer  becomes  an  individual  examiner  of 
the  banker's  methods  and  ability. 

§  24.  Changes.  In  a  new  community,  a  merchant  or 
wealthy  citizen  begins  by  buying  notes,  or  making  smallj 
loans,  and  is  finally  carried  or  forced  into  a  regular  banking^ 
business.  Thus  it  is  that  many  of  the  large  banks  have 
begun.  After  running  for  some  time  as  a  private  bank,  many 
of  them  are  converted  into  state  or  national  banks.  As  the 
advantages  of  a  country  are  developed,  and  the  business 
interests  improved,  the  greater  part  of  these  private  institu- 
tions are  thus  changed. 

$25.  Details  of  Management.  As  in  state  banks,  the 
methods  of  doing  the  regular  business  of  banking  do  not,  nee- 


STATE   AND   PRIVATE    BANKS   AND   BANKERS.  23 

essarily,  differ  from  those  of  national  banks.  It  is  generally 
supposed  that  the  management  of  private  banks  is  as  satis- 
factory, to  all  concerned,  as  is  the  management  of  other  banks. 


CHAPTER  in. 
THE  NATIONAL  BANK  ACT. 


I.      POWERS   OF   THE   COMPTROLLER. 


26.  Banks  prohibited. 

27.  Congress  takes  a  hand. 

28.  Bureau  of  national  currency. 

29.  Appointment. 

30.  Oath  and  bond. 

II.       ORGANIZATION,   BEGINNING   AND   EXTENSION. 


31.  Interest  in  national  banks. 

32.  Seal. 

33.  Rooms. 

34.  Report. 


35.  Number  of  persons. 

36.  Organization  certificate. 

37.  Acknowledgment. 

38.  Capital  required. 

39.  Shares. 

40.  Payment  of  stock. 

41.  Delinquent  shareholders. 

42.  Examination  of  certificate. 

III.      DIRECTORS,  DECLARING    DIVIDENDS,   AND    POWERS   OF    NATIONAL  BANKS. 


§  43.  Comptroller's  certificate. 

44.  Place  of  business. 

45.  Extension  of  charter. 
45<2.  Consent  of  shareholders. 

46.  Shareholder  not  consenting. 

47.  Re- issue  of  notes. 

48.  Expiration  of  charter. 


49.  Election  of  directors. 

50.  Qualification. 

51.  Oath. 

52.  President. 

53.  Vacancy. 

54.  Declaring  dividends. 

55.  Capital  not  to  be  withdrawn. 

56.  Powers  of  national  banks. 


§  57.  Powers  to  hold  real  estate. 

58.  Limit  of  loans. 

59.  Other  loans  prohibited 

60.  Bank  notes  as  security. 

61.  Indebtedness. 

62.  Certification. 

63.  Uncurrent  notes. 

64.  Use  of  the  word  "National. 


IV.       INCREASE   AND    REDUCTION    OF    CAPITAL. 

65.  Increase  of  capital  stock.  '.    £  66.   Reduction  of  capital  stock. 

V.   HOW  BONDS  ARE  DEPOSITED. 


67.  U.  S.  bonds. 

68.  Bonds  deposited. 

69.  Change  of  bonds. 

70.  Exchange  of  bonds. 

71.  Amount  of  bonds. 

72.  Retiring  part  of  circulation. 


§  73.  How  bonds  are  held. 

74.  Transfers. 

75.  Access  to  bonds. 

76.  Depreciation  of  value. 

77.  Examination  of  bonds. 


THE   NATIONAL   BANK   ACT. 


78. 

79- 
80. 
81. 
82. 

S3- 
84. 

> 
86. 
87. 
88. 

89. 
90. 
91. 
92. 

93- 


HOW    BANKS    ISSUE    AND    REDEEM    CIRCULATING    NOTES. 

94.   Gold  certificates. 


VI. 

Amount. 

Engraving  and  printing. 

Control  of  plates  and  dies. 

Examination  of  plates. 

Legal  tenders. 

Unlawful  delivery  to  banks. 

Imitation. 

Mutilation. 

Replacing  mutilated  notes. 

Reserve  required. 

Proportion  of  reserve  allowed  in 

reserve  cities. 
Approved  reserve  agents. 
Extension  of  reserve  cities. 
Redemption  fund. 
Gold-note  banks. 
Reserve  on  circulation  of  gold 

notes. 


95.  Treasury  certificates. 

96.  Issue  of  other  notes. 

97.  Other  restrictions. 

98.  Voluntary  liquidation. 

99.  Notice. 

100.  Redeeming  the  notes. 

101.  Consolidation. 

102.  Bonds  re-assigned. 

103.  Destruction  of  notes. 

104.  Failure  to  take  up  bonds. 

105.  Protesting  notes. 
1  06.  Forfeit  of  bonds. 

107.  After  protest. 

108.  Notice  to  note-holders. 

109.  Sale  of  bonds. 
no.   Cancellation. 


VII.       INTEREST. 

Rate  permitted.  |   §112.  Penalty  for  illegal  interest. 

VIII.       JURISDICTION,   PLEADING    AND    EVIDENCE. 


114. 


§"7- 
n8. 
119. 

120. 

§"5- 
126. 
127. 
128. 
129. 
130. 

§135- 
136. 
137- 


What  courts. 

Who  to  conduct  suit. 

Evidence. 


IX. 


Embezzlement. 
U.  S.  securities. 

Illegal  use  of  plates  and  bank- 
note paper. 
Passing  counterfeit  notes. 


§116.   Organization  certificate  as  evi- 
dence. 


CRIMINALITY. 

121.  Taking  impressions. 

122.  Counterfeiting     national     bank 

notes. 

123.  Dealing  in  forged  notes. 

124.  Circulating  uncurrent  notes. 


Protest. 

Appointing  a  receiver. 

Notice. 

Dividends  to  creditors. 

Election  of  agent. 

Forfeiture  of  franchise. 


X.       DISSOLUTION    AND    RECEIVERSHIP. 

§131.  When     receiver 


may    be    ap- 
pointed. 

132.  Right  to  enjoin. 

133.  Voluntary  liquidation. 

134.  Individual  liability. 


XI. 

Bank  examinations. 
Compensation. 
Special  examinations. 
Visitation. 


EXAMINATIONS   AND    REPORTS. 

£139.  Reports. 

140.  Report  of  dividends. 

141.  Penalty. 


28  THE   BUSINESS   OF    BANKING. 


XII.       TAXATION. 


§142.  Taxing  the  shares. 

143.  Exemption  on  circulation. 

144.  Tax  on  other  bank  notes. 

145.  Tax  on  other  notes. 

146.  Statement  of  circulation. 

147.  Penalty. 


§148.  Return  on    circulation  of  state 

banks  converted. 
149    U.  S.  tax. 

150.  Semi-annual  return  on  circula- 

tion. 

151.  Refund  of  excess. 


XIII.       CONVERSION    OF    STATE    TO    NATIONAL    BANKS,    AND   VICE   VERSA. 

§152.  From  state  to  national  bank.         |  §153.  From  national  to  state  bank. 
I.     POWERS    OF    THE    COMPTROLLER. 

§  26.  Banks  Prohibited.  At  the  time  of  the  war  of  the 
rebellion,  owing  largely  to  the  frauds  that  had  been  practiced, 
banks  were  looked  upon  as  gigantic  engines  of  robbery,  and 
so  low  had  the  principles  of  banking  been  dragged,  that  some 
of  the  states  objected  to  their  formation,  and  Michigan 
amended  its  constitution  to  prohibit  them. 

§  27.  Congress  took  hold  of  the  matter  and  enacted  the 
National  Bank  Act.  This  law  has  been  amended  several 
times.  What  we  give  of  it  in  this  work  is  taken  from  the 
Revised  Statutes.  Congress  had  several  reasons  for  enacting 
a  new  system  of  banks.  One  was  to  prevent  the  many  frauds 
that  were  perpetrated,  and  another  was  to  remedy  the  unre- 
liability of  the  state  banks'  circulation,  which,  owing  to  the 
lack  of  proper  methods  -for  its  redemption,  had  sunk  to  its 
lowest  ebb.  Another  reason  was  to  enable  the  government 
to  secure  the  loan  of  sufficient  money  to  carry  on  the  war. 
This  could  be  accomplished  by  having  banks  buy  United 
States  bonds,  and,  by  having  them  deposited  with  the  Treas- 
urer of  the  United  States,  it  would  also  secure  the  redemp- 
tion of  the  banks'  circulation. 

§  28.  Bureau  of  National  Currency.  One  of  the  provi- 
sions of  the  National  Bank  Act  is  that  there  shall  be,  in  the 
Department  of  the  Treasury,  a  bureau  charged  with  the  exe- 
cution of  all  laws  passed  by  Congress  regarding  the  regulation 
of  the  national  currency  secured  by  United  States  bonds. 
The  chief  officer  of  this  bureau  shall  be  called  the  Comptrol- 


THE  NATIONAL  BANK  ACT.  29 

ler  of  the  Currency,  and  he  must  submit  himself  to  the  gen- 
eral instructions  of  the  Secretary  of  the  Treasury. 

§  29.  Appointment.  The  Comptroller  of  the  Currency  is 
appointed  by  the  President,  on  the  recommendation  of  the 
Secretary  of  the  Treasury,  and  with  the  consent  of  the  Sen- 
ate. He  holds  office  for  five  years  unless,  upon  reasons  com- 
municated by  the  Senate,  he  be  sooner  removed  by  the  Presi- 
ident.  His  salary  is  five  thousand  dollars  a  year. 

§  30.  Oath  and  Bond.  Within  fifteen  days  from  the  time 
of  his  appointment  he  must  subscribe  to  the  oath  of  office 
and  give  to  the  United  States  a  bond,  for  the  faithful  per- 
formance of  his  duty,  in  the  sum  of  one  hundred  thousand 
dollars.  There  is  also  a  Deputy  Comptroller,  who  has  a 
salary  of  two  thousand  five  hundred  dollars.  He  must  give  a 
bond  in  the  sum  of  fifty  thousand  dollars.  The  Comptroller 
may  hire  the  necessary  clerks  who  shall  perform  such  duties 
as  he  may  direct. 

§  31.  Interest  in  National  Banks.  The  Comptroller  can- 
not lawfully  be  interested,  in  any  way,  in  any  association 
issuing  national  currency. 

§  32.  Seal.  The  Comptroller  is  provided  with  a  seal  of 
office,  devised  by  the  Comptroller  and  approved  by  the  Secre- 
tary of  the  Treasury.  A  description,  with  an  impression  of 
the  seal,  and  a  certificate  of  approval  of  the  Secretary  of  the 
Treasury,  must  be  filed  with  the  Secretary  of  State. 

§  33.  Rooms.  The  Secretary  of  the  Treasury  shall  set 
apart  rooms  in  the  Treasury  building  suitable  for  the  business 
of  the  Bureau  of  Currency,  and  shall  provide  safe  and  secure 
fire-proof  vaults,  in  which  the  Comptroller  shall  deposit  and 
keep  all  the  plates  not  in  the  hands  of  the  engravers  or 
printer,  and  any  other  valuables  belonging  to  the  Department. 
The  Comptroller  must  furnish  suitable  conveniences,  such  as 
furniture,  stationery,  etc.,  for  the  transaction  of  the  business 

of  his  office. 

$  34.  Report.  The  Comptroller  is  required  to  make  a 
report  to  Congress  once  in  each  year,  giving  a  summary  of 


30  THE  BUSINESS  OF  BANKING. 

the  condition  of  every  banking  association  from  which  re- 
ports have  been  received  the  preceding  year.  He  must  set 
forth  the  whole  amount  of  capital  returned  by  them;  their 
total  resources  and  liabilities;  the  amount  of  circulating  notes 
outstanding ;  the  amount  of  lawful  money  held  by  each,  and 
any  other  information  which  he  deems  useful. 

He  recommends  to  the  consideration  of  Congress  any 
amendments  to  the  banking  laws  which,  in  his  opinion,  would 
be  of  benefit  to  the  business  world.  He  makes  suggestions 
regarding  the  clerks  of  his  office,  the  bank  examiners,  and 
reviews  the  important  functions  of  bank  officers,  and  gives  a 
digest  of  recent  court  decisions  regarding  banking. 

He  incorporates  in  his  report  a  statement  of  all  the  re- 
sources and  liabilities  of  all  national  banks  in  every  city  in 
the  United  States,  and  compares  the  aggregate  resources  and 
liabilities  for  the  year  with  those  of  the  preceding  year. 

II.     ORGANIZATION,  BEGINNING  AND   EXTENSION. 

§  35.  Number  of  Persons.  Not  less  than  five  natural 
persons  may  organize  a  national  bank.  They  must  draw  up 
articles  of  association,  specifying  the  object  for  which  the 
association  is  organized,  and  any  other  provisions,  not  incom- 
patible with  law,  which  they  may  wish  to  adopt  for  the  regu- 
lation and  conduct  of  the  affairs  of  their  bank.  These  articles 
are  signed  and  a  copy  sent  to  the  Comptroller  of  the  Currency. 

§  36.  Organization  Certificate.  A  certificate  of  organiza- 
tion shall  be  made  which  shall  specify: 

First.  The  name  of  the  proposed  association;  which  name 
shall  be  subject  to  the  approval  of  the  Comptroller  of  the 
Currency. 

Second.  The  state,  territory  or  district,  and  the  county,  city, 
town  or  village,  where  its  operations  of  banking  are  to  be 
carried  on. 

Third.    The  amount  of  capital  and  the  number  of  shares. 

Fourth.  The  name  and  residence  of  the  shareholders,  and 
the  number  of  shares  held  by  each. 


THE  NATIONAL  BANK  Acr.  31 

Fifth.  That  the  certificate  is  made  to  obtain  the  benefits 
of  the  National  Bank  Act. 

§  37.  Acknowledgment.  The  certificate  of  organization 
must  be  acknowledged  before  a  judge  of  some  court  of  record, 
or  a  notary  public ;  and  shall  be,  together  with  the  acknowl- 
edgment, sent  to  the  Comptroller  of  the  Currency. 

§  38.  Capital.  If  the  population  of  a  place  does  not  ex- 
ceed six  thousand,  a  national  bank  may,  with  the  approval  of 
the  Secretary  of  the  Treasury,  be  organized  with  a  capital  stock 
of  not  less  than  fifty  thousand  dollars.  In  towns  with  from  six 
thousand  to  fifty  thousand  inhabitants,  a  national  bank  must 
have  not  less  than  one  hundred  thousand  dollars  ;  in  cities 
with  over  fifty  thousand  inhabitants  they  must  have  not  less 
than  two  hundred  thousand  dollars. 

§  39.  Shares.  The  capital  stock  must  be  divided  into 
shares  of  one  hundred  dollars  each,  and  these  are  deemed 
personal  property.  The  shares  must  be  transferable  on  the 
books  of  the  organization  in  such  manner  as  the  by-laws  or 
articles  of  association  may  prescribe. 

When  a  person  becomes  a  shareholder  by  such  transfer  he 
succeeds  to  all  the  rights  and  liabilities  of  the  prior  holder  of 
such  share  or  shares. 

§  40.  Payment  of  Stock.  Before  the  bank  shall  be 
authorized  to  begin  the  business  of  banking  it  is  necessary 
that  at  least  fifty  per  cent,  of  the  capital  stock  be  paid  in  ; 
and  the  remainder  of  the  stock  must  be  paid  in  installments  of 
at  least  ten  per  cent,  each  of  the  whole  capital  stock.  These 
installments  must  be  paid  as  frequently  as  one  installment  a 
month  until  paid  in  full.  A  certificate  of  the  payment  of 
each  installment,  under  oath  of  the  president  or  cashier,  must 
be  made  to  the  Comptroller. 

§  41.  Delinquent  Shareholders.  If  a  shareholder  fails  to 
pay  any  installment  on  the  stock,  when  required  to  do  so, 
the  directors,  after  giving  notice  for  three  weeks  in  a  newspa- 
per published  in  the  town,  or  if  none  be  published  therein, 


32  THE  BUSINESS  OF  BANKING. 

then  in  the  one  published  nearest  thereto,  may  sell,  at  public 
auction,  such  stock  to  the  highest  bidder,  providing  said  bid 
be  net  less  than  the  amount  then  due  thereon,  with  the  expense 
of  advertisement,  sale,  etc.  If  there  should  be  any  excess,  it 
is  paid  to  the  delinquent  shareholder.  If  no  bid,  equal  to  the 
amount  just  mentioned,  be  offered,  the  amount  previously 
paid  shall  be  forfeited  to  the  association,  but  the  stock  must 
either  be  sold,  as  the  directors  may  order,  within  six  months, 
or  be  cancelled  and  deducted  from  the  capital  stock  of  the 
organization.  If  any  such  cancellation  should  reduce  the 
capital  below  that  required  by  law,  the  capital  stock  shall, 
within  thirty  days,  be  increased  to  the  required  amount,  or  a 
receiver  may  be  appointed  to  close  up  the  business  of  the 
association. 

§  42.  Examination  of  Certificate.  After  the  certificate  of 
organization  has  been  transmitted  to  the  Comptroller  of  the 
Currency  and  the  association  has  notified  him  that  at  least 
fifty  per  cent,  of  the  capital  stock  has  been  paid  in,  and  that 
the  association  has  complied  with  all  the  provisions  of  the 
National  Bank  Act  required  to  be  complied  with  before  being 
authorized  to  begin  the  operations  of  banking,  the  Comp- 
troller shall  inquire  into  the  condition  of  the  proposed  bank, 
ascertaining  all  the  facts  thereto,  that  he  may  decide  whether 
the  organization  is  lawfully  entitled  to  begin  the  operations  of 
banking. 

§  43.  Comptroller's  Certificate.  If,  after  a  careful  exami- 
nation of  all  the  facts,  whether  by  special  commission  ap- 
pointed for  the  purpose,  or  inquiring  into  the  conditions,  or 
otherwise,  it  seems  that  the  organization  is  entitled  to  the 
privileges  of  the  law,  the  Comptroller  shall  send  a  certificate, 
under  seal,  authorizing  the  association  to  begin  business. 

The  association  must  publish  the  certificate  for  at  least 
sixty  days  in  some  newspaper. 

§  44.  Place  of  Business.  The  usual  business  of  each 
national  banking  association  shall  be  transacted  at  an  office, 


THE  NATIONAL  BANK  ACT.  33 

or  banking  house,  located  in  the  place  specified  in  its  organi- 
zation certificate. 

§  45.  Extension  of  Charter.  Congress  gives  the  national 
banks,  organized  under  the  act  known  as  the  National  Bank 
Act,  the  privilege  of  extending  their  charter  for  a  period  of 
twenty  years  after  the  expiration  of  their  corporate  existence 
under  the  present  law;  they  must,  however,  make  application 
for  such  extension  any  time  within  the  two  years  next  pre- 
ceding the  expiration  of  their  old  charter,  and  the  change 
must  be  made  by  amending  the  articles  of  association. 

§  4$a.  Such  amendment  must  be  authorized  by  the  con- 
sent in  writing  of  shareholders  owning  at  least  two-thirds  oi 
the  capital  stock,  and  such  consent  must  be  certified  to  the 
Comptroller,  under  seal  of  the  bank,  together  with  a  copy  oi 
the  amended  articles  of  association.  After  a  careful  exami- 
nation, if  the  Comptroller  is  satisfied  that  all  the  required 
provisions  have  been  complied  with,  there  shall  be  issued  a 
certificate  under  seal  certifying  that  the  association  is  author- 
ized to  continue  business  for  the  period  mentioned  in  the 
articles  of  association. 

§  46.  Any  shareholder  not  consenting  to  the  extension, 
and  wishing  to  withdraw  from  the  association,,  shall,  within 
thirty  days  from  the  date  of  the  Comptroller's  certificate,  give 
notice  in  writing  to  the  directors  of  his  desire  to  withdraw, 
and  he  shall  be  entitled  to  receive  the  value  of  the  shares 
held  by  him.  Such  value  shall  be  ascertained  by  appraisal 
by  a  committee  of  three  persons.  If  the  shareholder  is  not 
satisfied  with  the  value  so  fixed  he  may  appeal  to  the  Comp- 
troller, who  shall  order  a  re-appraisal,  which  shall  be  final. 
If  the  re-appraisal  shall  be  less  than  the  value  fixed  by  the 
committee,  the  shareholder  must  pay  the  expenses  of  said  re- 
appraisal, otherwise  the  bank  must  pay  such  expenses. 

The  shares  surrendered  under  this  section  shall  be  sold  at 
public  auction  according  to  the  provisions  of  §  41  (q.  v.). 

§  47.  The  law  provides  that  in  case  of  the  extension  of  a 
national  bank,  the  old  notes  issued  by  it  shall  be  redeemed 


34  THE  BUSINESS  OF  BANKING. 

and  new  ones  issued  in  their  stead,  the  bank  paying  the  cost 
of  preparing  the  plates  for  such  new  circulation. 

§  48.  If  a  bank  does  not  intend  to  extend  its  time  after 
the  expiration  of  its  charter  it  must  go  into  liquidation  the 
same  as  if  it  went  into  voluntary  liquidation. 

III.     DIRECTORS,  DECLARING   DIVIDENDS,  AND    POWERS   OF 
NATIONAL   BANKS. 

§  49.  Election  of  Directors.  The  management  of  each 
national  bank  shall  be  intrusted  to  a  board  of  not  less  than 
five  directors,  who  shall  be  elected  by  the  shareholders  at 
any  meeting  held  before  the  bank  is  authorized  to  begin  busi- 
ness; and  afterward  at  the  regular  meeting  of  shareholders  to 
be  held  on  such  day  of  January  of  each  year  as  the  articles  of 
association  may  specify.  The  directors  hold  office  for  one 
year  or  until  their  successors  are  elected  and  qualified. 

Each  shareholder  is  entitled  to  one  vote  for  each  share 
held  by  him,  in  election  of  directors  and  such  other  minor 
matters  as  may  come  up  during  the  meeting.  A  shareholder 
may  vote  by  proxy,  but  no  clerk,  bookkeeper  or  teller  of  the 
bank  will  be  allowed  to  act  as  proxy,  and  no  shareholder 
whose  liabilities  to  the  bank  are  past  due  and  unpaid  shall  be 
permitted  to  vote. 

§  50.  Qualification.  Every  director  must  be  a  citizen  of 
the  United  States,  and  at  least  three-fourths  of  the  directors 
must  have  resided  for  at  least  one  year,  immediately  pre- 
ceding their  election,  in  the  state  or  territory  in  which  the 
bank  is  located,  and  must  continue  so  to  reside  during  their 
term  in  office. 

Every  director  must  own  in  his  own  right  at  least  ten 
shares  of  the  capital  stock  of  the  bank,  and  when  he  ceases 
to  own  said  number  of  shares  he  shall  vacate  his  place. 

§  51.  Oath.  Each  director  takes  an  oath  that  he  wil] 
faithfully  and  diligently  perform  all  his  duties,  that  he  will 
not  violate  or  permit  to  be  violated  the  National  Bank  Act, 


THE  NATIONAL  BANK  ACT.  35 

that  he  is  owner  of  the  number  of  shares  required  and  that 
they  stand  in  his  name  and  are  not  hypothecated  or  in  any 
way  pledged  for  debt.  After  this  oath  is  subscribed  to,  it  is 
sent  to  the  Comptroller,  who  keeps  it  on  file  in  his  office. 

§  52.  President.  The  directors  appoint  one  of  their  num- 
ber who  shall  be  president  of  the  board. 

§  53.  Vacancy.  Should  a  vacancy  occur  in  the  board  of 
directors  it  shall  be  filled  by  appointment  by  the  remainder 
of  the  directors,  and  such  new  director  shall  hold  office  until 
the  next  election. 

If,  for  any  reason,  the  directors  are  not  elected  at  the  ap- 
pointed time,  the  old  directors  shall  continue  in  office  until 
others  are  elected ;  and  an  election  may  be  held  at  any  time 
after  thirty  days'  notice  shall  have  been  given  in  a  newspaper 
published  in  the  place  ;if  none  be  published  in  such  place, 
then  in  the  one  published  nearest  thereto. 

If  the  articles  of  association  do  not  fix  the  day  of  election 
it  shall  be  fixed  by  the  by-laws,  or  if  not  so  fixed,  then  the 
shareholders  representing  two-thirds  of  the  stock  may  do  so. 

§  54.  Declaring  Dividends.  A  semi-annual  dividend,  of 
as  much  of  the  profits  as  the  directors  may  deem  proper,  may 
be  declared  ;  but  before  doing  so  they  must  carry  at  least  ten 
per  cent,  of  the  previous  six  months'  profits  to  the  surplus 
fund,  until  such  surplus  shall  equal  twenty  per  cent,  of  the 
capital  stock  of  the  association. 

§55-  Capital  Not  to  be  Withdrawn.  Banking  associa- 
tions are  prohibited  from  withdrawing,  in  the  form  of  divi- 
dends, any  portion  of  their  capital.  If  a  net  loss  occurs  no 
dividend  shall  be  declared  ;  and  none  shall  ever  be  declared 
for  an  amount  in  excess  of  the  bank's  net  profits  after  deduct- 
ing all  losses  and  bad  debts. 

Debts  due  the  bank  on  which  interest  is  past  due  and 
unpaid  for  a  period  of  six  months,  unless  the  same  is  well 
secured  and  in  process  of  collection,  shall  be  considered  bad 
debts. 


36  THE  BUSINESS  OF  BANKING. 

Nothing  herein  shall  be  construed  to  prevent  the  reduction 
of  capital  as  provided  for  in  §  66. 

§  56.  Powers.  After  receiving  the  Comptroller's  certifi- 
cate the  organization  shall  become  a  body  corporate,  and  in 
such  capacity  shall  have  power: 

First.     To  use  a  corporate  seal. 

Second.  To  have  succession  for  a  period  of  twenty  years, 
unless  it  be  sooner  dissolved  by  its  articles  of  association,  or 
by  its  shareholders,  or  by  violation  of  law. 

Third.  To  make  contracts  pertaining  to  the  business  of 
banking. 

Fourth.     To  sue  and  be  sued. 

Fifth.  To  elect  or  appoint  directors,  and,  by  its  board  of 
directors,  to  appoint  a  cashier,  a  president,  a  vice-president 
and  other  officers,  and  to  define  their  duties  and  require  bonds 
of  them.  The  board  is  vested  with  power  to  dismiss  any 
officer  at  pleasure  and  appoint  another  to  fill  his  place. 

Sixth.  To  exercise,  by  its  board  of  directors  or  authorized 
agents,  all  the  powers  necessary  to  carrying  on  the  business 
of  banking.  To  discount  and  negotiate  promissory  notes, 
drafts  and  other  evidence,  of  debt.  To  receive  deposits  and 
pay  checks.  To  buy  and  sell  exchange,  coin  and  bullion,  and 
to  loan  money  on  personal  security.  To  issue  and  circulate 
bank  notes  as  money. 

Seventh.  To  prescribe,  by  its  board  of  directors,  by-laws 
regulating  the  manner  in  which  its  stock  shall  be  transferred 
and  its  general  business  conducted. 

§  57.  Powers  to  Hold  Real  Estate.  For  the  following 
purposes,  and  no  others,  a  national  bank  may  purchase,  hold 
and  convey  real  estate : 

First.  The  lot  and  building  needed  for  the  transaction  of 
its  business. 

Second.  Real  estate  mortgaged  to  it  in  good  faith  as  secu- 
rity for  debts  previously  contracted. 

Third.  Real  estate  conveyed  to  it  in  satisfaction  of  debts 
previously  contracted. 


THE  NATIONAL  BANK  ACT.  37 

Fourth.  Real  estate  bought  under  judgments,  decrees,  or 
mortgages  held  by  the  bank,  or  purchased  to  secure  debts 
due  to  it. 

In  no  case  shall  it  be  allowed  to  hold  real  estate,  obtained 
to  secure  debt,  for  a  longer  period  than  five  years. 

§  58.  Limit  of  Loans.  Loans  of  money  to  any  one  per- 
son, or  firm,  or  the  several  members  of  any  firm,  shall  not 
exceed  ten  per  cent,  of  the  capital  stock  of  any  national  bank- 
ing association  actually  paid  in  ;  except,  in  case  of  a  discount 
of  drafts  or  bills  of  exchange,  drawn  in  good  faith  against 
existing  values,  and  the  discount  of  business  paper  owned  by 
the  person  negotiating  the  same,  shall  not  be  considered  as  a 
loan  of  money. 

§  59.  Other  Loans  Prohibited.  Banking  associations  can- 
not make  any  loans  nor  discount  any  paper  on  the  security  of 
their  own  stock.  Neither  can  they  be  holders  or  purchasers 
of  such  stock,  excepting  to  prevent  loss  on  a  debt  previously 
contracted  in  good  faith.  Should  they  acquire  or  purchase 
any  stock,  as  just  stated,  it  must  be  re-sold  within  six  months, 
or  a  receiver  may  be  appointed  to  close  up  the  affairs  of  the 
institution. 

§  60.  Bank  Notes  as  Security.  United  States  notes  or 
national  bank  notes  cannot  be  taken  as  security  for  a  loan  of 
money,  and  they  cannot  be  held,  under  any  pretext,  as  such 
security.  A  violation  of  this  provision  is  deemed  a  misde- 
meanor and  the  penalty  is  a  fine  of  not  more  than  one  thou- 
sand dollars  and  a  further  sum  equal  to  one-third  of  the 
amount  loaned;  and  the  officer  who  shall  make  such  loan 
shall  be  liable  for  a  further  sum  equal  to  one-fourth  of  the 
amount  so  loaned.  The  fine  incurred  by  a  violation  of  this 
section  shall  be  recoverable  to  the  benefit  of  the  person 
bringing  suit. 

§  61.  Indebtedness.  The  limit  of  indebtedness  is  fixed  at 
an  amount  not  exceeding  the  capital  stock  paid  in,  except  on 
account  of  demands  of  the  following  nature : 


38  THE  BUSINESS  OF  BANKING. 

First.      Notes  of  circulation. 

Second.      Money  deposited  with  or  collected  by  the  bank. 

Third.  Bills  of  exchange  or  drafts  drawn  on  money  due 
the  association. 

Fourth.  Amounts  due  to  the  shareholders  for  dividends 
and  reserve  profits. 

§  62.  Certification.  A  national  bank  must  not  certify 
any  check  drawn  on  it  unless  the  drawer  has  on  deposit  with 
it,  at  the  time  the  check  is  certified,  an  amount  of  money 
equal  to  the  check.  If  an  over-certification  is  made  it  is  a 
valid  obligation  against  the  bank,  but  any  officer,  or  clerk, 
who  violates  this  section,  or  who  resorts  to  any  device,  or 
receives  any  fictitious  obligation,  direct  or  collateral,  in  order 
to  evade  the  provisions  thereof,  shall  be  deemed  guilty  of  a 
misdemeanor  and  be  subject  to  a  fine  of  not  more  than  five 
thouand  dollars,  or  imprisonment  for  not  more  than  five 
years,  or  both. 

§  63.  'Uncurrent  Notes.  No  national  bank  shall  pay  out 
or  put  in  circulation  the  notes  of  any  bank  which,  at  that 
time,  are  not  receivable  at  par,  by  the  association  which 
issued  them. 

§  64.  Use  of  the  Word  National.  Banks  not  organized  under 
the  National  Bank^Act,  or  the  National  Currency  Laws,  and 
all  persons  or  corporations  doing  a  banking  business,  brokers, 
or  savings  banks,  except  those  authorized  by  Congress  to  use 
the  word  "National,"  are  prohibited  from  using  the  word 
''National,"  as  a  part  of  their  title,  firm  or  corporate  name. 
A  violation  of  this  section  subjects  the  party  chargeable  to  a 
fine  of 'fifty  dollars  for  each  day  during  which  it  is  committed 
or  repeated. 

IV.    INCREASE    AND    REDUCTION    OF    CAPITAL. 

§  65.  Increase  of  Capital.  Any  banking  association 
formed  by  authority  of  the  National  Bank  Act,  may,  by  its 
articles  of  association,  increase  its  capital  stock  whenever  it 


THE  NATIONAL  BANK  ACT.  39 

is  deemed  expedient.  The  maximum  of  such  increase  must 
be  determined  by  the  Comptroller  of  the  Currency.  Such 
increase  is  not  valid  until  the  whole  amount  is  paid  in  and 
notice  sent  to  the  Comptroller  and  his  certificate  of  approval 
received. 

§  66.  Reduction  of  Capital.  By  a  vote  of  shareholders 
owning  two-thirds  of  the  capital  stock,  any  association  organ- 
ized under  this  Title  may  reduce  its  capital  to  any  sum  not 
below  the  minimum  required  by  law,  nor  below  the  amount 
required  for  its  outstanding  circulating  notes.  Any  proposed 
reduction  must  have  the  approval  of  the  Comptroller  ,  and 
the  capital  set  free  must  be  returned  to  the  shareholders. 

V.     HOW   BONDS  ARE   DEPOSITED. 

§  67.  U.  S.  Bonds.  The  term  «  United  States  bonds,"  as 
herein  used,  means  registered  bonds  of  the  United  States. 

§  68.  Bonds  Deposited.  Every  banking  association  organ- 
ized under  this  Title,  before  it  shall  be  authorized  to  begin  the 
business  of  banking,  must  deposit  with  the  U.  S.  Treasurer, 
registered  U.  S.  bonds  to  an  amount  not  less  than  thirty 
thousand  dollars  and  not  less  than  one-third  of  its  capital 
stock  paid  in.  Such  bonds  shall  be  received  by  the  Treasu- 
rer and  by  him  kept  safe  in  his  office  until  they  are  disposed 
of  as  provided  in  the  next  section.  See  also  §  71. 

§  69.  Change  of  Bonds.  The  bonds  must  be  increased  as 
the  bank's  capital  is  paid  up  or  increased,  so  that  every  asso- 
ciation shall  at  all  times  have  bonds  on  deposit  with  the 
Treasurer  to  an  amount  not  less  than  one-third  of  the  capital 
stock  paid  in.  Any  association  desiring  to  reduce  its  capital 
or  to  close  up  its  business  and  dissolve  its  organization  may 
take  up  its  bonds  by  returning  to  the  Comptroller  its  circu- 
lating notes  in  proportion  as  hereinafter  required,  and  may 
at  any  time  take  up  its  bonds  in  excess  of  one-third  of  its 
capital,  and  upon  which  no  notes  have  been  delivered. 


4C  THE  BUSINESS  OF  BANKING. 

§  70.  Exchange  of  Bonds.  In  order  to  facilitate  a  com- 
pliance with  the  last  two  sections,  the  Act  of  1864  authorized 
the  Treasurer  to  exchange  registered  bonds  for  coupon  bonds, 
of  the  same  tenor. 

§  71.  Amount  of  Bonds.  The  amendment  of  1882  to  the 
National  Bank  Act  declared  that  banks  then  organized  or 
thereafter  to  be  organized,  with  a  capital  of  $150,000  or  less, 
should  not  be  required  to  deposit  with  the  Treasurer  bonds  in 
excess  of  one-fourth  of  their  capital  stock  as  security  for  cir- 
culation. Any  such  bank  with  a  deposit  of  bonds  in  excess  of 
the  amount  just  mentioned  is  at  liberty  to  retire  a  part  of  its 
circulation  as  provided  in  the  next  section.  In  no  case  shall 
the  circulation  exceed  ninety  per  cent,  of  the  par  value  of  the 
bonds  deposited. 

§  72.  Retiring  Part  of  Circulation.  Any  national  bank 
desiring  to  withdraw  a  part  of  its  circulation  may  do  so  by 
depositing  with  the  Treasurer,  lawful  money,  and  then  may 
withdraw,  in  order  of  such  deposits,  a  proportionate  amount 
of  bonds  held  as  security  for  circulating  notes.  No  national 
bank,  thus  withdrawing  a  part  of  its  circulating  notes,  shall  be 
permitted  to  increase  its  circulation  for  at  least  six  months 
from  the  time  it  makes  such  deposit  of  lawful  money  as 
aforesaid.  The  maximum  limit  of  deposits  of  lawful  money 
for  this  purpose  shall  not  exceed  $3,000,000  in  any  calendar 
month.  This  section  does  not  apply  to  bonds  called  for 
redemption  by  the  Secretary  of  the  Treasury,  nor  the  with- 
drawal of  circulating  notes  in  consequence  thereof. 

§  73.  How  Bonds  are  Held.  All  bonds  transferred  under 
this  Title  shall  be  made  to  the  Treasurer  of  the  United  States 
in  trust  for  the  association.  A  memorandum  is  written  or 
printed  on  each  bond  and  signed  by  the  president  or  cashier  of 
the  bank.  The  Comptroller  sends  to  the  bank  a  receipt  speci- 
fying that  the  bonds  are  received  and  held  in  trust  for  the 
association  as  security  for  the  redemption  of  the  circulating 
notes  delivered  or  to  be  delivered  to  the  association. 


THE  NATIONAL  BANK  ACT.  41 

§  74.  Transfers.  Any  transfer  of  such  bonds  by  the 
Treasurer  must  be  countersigned  by  the  Comptroller  of  the 
Currency,  and  the  latter  must  keep  a  complete  record  of  every 
such  transfer.  Immediately  after  countersigning  and  record- 
ing any  transfer  by  the  Treasurer,  the  Comptroller  shall 
notify,  by  mail,  the  association  for  whose  account  the  trans- 
fer is  made,  of  the  kind,  numerical  designation  and  amount 
of  bonds  so  transferred. 

^  75.  Access  to  Bonds.  The  Comptroller  shall  at  all 
times  have  access  to  the  Treasurer's  records  regarding  depos- 
ited bonds,  and  the  Treasurer  has  a  like  access  to  the  Comp- 
troller's books ;  and  the  Comptroller  shall  at  all  times  have 
access  to  the  bonds  on  deposit  with  the  Treasurer,  to  ascer- 
tain their  amount  and  condition. 

§  76.  Depreciation  of  Value.  The  bonds  deposited  for 
the  security  of  circulating  notes  must  be  kept  by  the  Treasurer 
for  that  purpose  exclusively. 

Each  association  is  entitled  to  the  interest  accruing  on  all 
bonds  so  deposited,  unless  it  fails  to  redeem  its  notes. 

If  the  market  value  of  the  bonds  is  reduced  below  the 
amount  of  circulation  issued,  the  bank  must  deposit  money 
or  other  bonds  to  make  good  any  such  depreciation  in  value. 
And  the  Comptroller  may  return  to  the  bank  the  bonds  de- 
posited, in  amounts  not  less  than  one  thousand  dollars,  upon 
receipt  of  the  circulating  notes  in  a  proportionate  amount ; 
provided  that  the  amount  of  the  bonds  remaining  on  deposit 
\  is  not  less  than  the  amount  required  to  be  kept  on  deposit. 

§  77.  Examination  of  Bonds.  Every  national  bank  shall, 
once  or  oftener  in  each  fiscal  year,  examine  and  compare  the 
bonds  deposited  by  the  bank  with  the  records  of  the  Comp. 
troller  and  the  accounts  of  the  association,  and  if  found  cor- 
rect, it  shall  execute,  to  the  Treasurer,  a  certificate  stating 
the  kind,  amount,  and  that  the  same  are  in  the  custody  of  the 
Treasurer.  A  duplicate  of  this  certificate  signed  by  the 
Treasurer  shall  be  retained  by  the  association.  Such  exami- 


42  THE  BUSINESS  OF  BANKING. 

nation  shall  be  made  at  such  hour  as  the  Comptroller  and 
the  Treasurer  may  select,  and  may  be  made  by  an  officer  or 
agent  of  the  bank. 

VI.    HOW    BANKS    ISSUE    AND    REDEEM    CIRCULATING    NOTES. 

§  78.  Amount.  Upon  a  deposit  of  bonds  as  provided  in 
§§  68  and  69,  except  as  modified  in  §§  70  and  71,  the  associa- 
tion making  the  same  shall  be  entitled  to  receive  from  the 
Comptroller  of  the  Currency,  circulating  notes,  of  different 
denomination,  in  blank,  registered  and  countersigned,  equal 
in  amount  to  ninety  per  cent,  of  the  market  value,  not  exceed- 
ing par,  of  the  bonds  deposited  ;  and  at  no  time  shall  the 
amount  of  such  circulating  notes  issued  to  any  association 
exceed  ninety  per  cent,  of  the  capital  stock  actually  paid  in. 

>>  79.  Engraving  and  Printing.  Under  the  direction  of 
the  Treasurer,  the  Comptroller  shall  cause  dies  and  plates  to 
be  engraved,  in  the  best  possible  manner  to  guard  against 
counterfeiting  and  alterations,  and  shall  have  printed  there- 
from, and  numbered,  such  quantity  of  notes,  in  denominations 
of  five  dollars,  ten  dollars,  twenty  dollars,  fifty  dollars,  one 
hundred  dollars,  five  hundred  dollars,  and  one  thousand  dol- 
lars, as  may  be  required  by  the  association  entitled  to  receive 
them. 

Such  notes  shall  express  upon  their  face  that  they  are 
secured  by  bonds  deposited  with  the  Treasurer  of  the  United 
States  ;  bear  the  written  or  engraved  signatures  of  the  Treas- 
urer and  Register;  and  the  imprint  of  the  seal  of  the  Treas- 
ury, though  the  omission  of  the  seal  would  not  invalidate  a 
note.  They  shall  also  express  upon  their  face  the  promise  of 
the  association  to  pay  on  demand,  attested  by  the  signatures 
of  the  president,  or  vice-president  and  cashier,  and  such  other 
devices  or  statements  as  the  Secretary  of  the  Treasury  may 
direct.  In  1874  Congress  provided  that  the  charter  number 
of  the  association  should  be  printed  upon  all  national  bank 
notes  thereafter  issued. 


THE  NATIONAL  BANK  ACT.  43 

§  So.  Control  of  Plates  and  Dies.  The  plates  and  dies 
used  for  printing  national  bank  notes  shall  remain  under  the 
direction  and  control  of  the  Comptroller  of  the  Currency.  All 
expenses  necessarily  incurred  in  executing  the  laws  respecting 
the  issue  of  such  notes,  and  all  expenses  of  the  Bureau  of 
Currency,  shall  be  paid  out  of  the  proceeds  of  taxes  and  duties 
collected  on  the  circulation  of  national  bank  notes. 

§8 1.  Examination  of  Plates.  Once  in  each  year  the 
Comptroller  must  cause  to  be  examined  the  plates,  dies  and 
other  material  from  which  bank  notes  are  printed,  and  file  in 
his  office  a  correct  list  of  the  same.  Such  material  as  shall 
have  been  used  in  printing  notes  of  closed  banks  or  those  in 
liquidation  shall  be  destroyed  under  certain  regulations.  The 
expenses  of  any  such  examination  and  destruction  of  plates 
shall  be  paid  by  any  appropriation  by  Congress  for  special 
examination  of  banks  and  bank-note  plates. 

§  82.  Legal  Tenders.  After  the  president,  or  vice-president 
and  cashier,  of  the  bank  signs  the  circulating  notes  promising 
to  pay  on  demand,  the  association  may  issue  and  circulate 
the  same  as  money.  Such  notes  shall  be  receivable  at  par  in 
all  parts  of  the  United  States  in  payment  of  taxes,  excises, 
public  lands,  and  all  other  obligations  due  the  United  States, 
except  duties  on  imports;  and  also  for  all  salaries  and  demands 
owing  by  the  United  States  to  individuals  and  associations 
within  the  United  States,  except  interest  on  the  public  debt, 
and  in  redemption  of  the  national  currency.  Every  national 
bank,  except  those  organized  to  issue  gold  notes,* shall  take  at 
par  any  and  all  notes  or  bills  issued  by  any  lawfully  organ- 
ized national  bank,  whenever  offered  for  any  liability  due  it. 

§  83.  Unlawful  Delivery  to  Banks.  If  any  officer  coun- 
tersigns or  delivers  any  circulating  notes  as  provided  by  §§  78 
and  79,  except  with  the  true  intent  and  meaning  of  the  pro- 
visions of  this  Title,  he  shall  be  deemed  guilty  of  high  misde- 
meanor, and  shall  be  fined  not  more  than  double  the  amount 
so  countersigned  and  delivered,  and  shall  be  imprisoned  not 
less  than  one  year  nor  more  than  fifteen  years. 


44  THE   BUSINESS   OF   BANKING. 

:.  Imitation.  Every  person  who  designs,  engraves, 
prints,  executes,  issues,  distributes,  circulates,  or  uses,  any 
business  or  professional  card,  notice,  placard,  circular,  hand- 
bill, or  advertisement,  in  the  likeness  or  similitude  of  any 
circulating  note  or  other  national  bank  obligation,  or  who 
writes,  prints  or  otherwise  impresses  upon  any  such  note  or 
obligation,  any  business  or  professional  card,  notice  or  adver- 
tisement, shall  be  liable  to  a  penalty  of  one  hundred  dollars, 
recoverable  one-half  to  the  informer. 

§  85.  Mutilation.  Every  person  who  mutilates,  cuts,  de- 
faces, disfigures  or  perforates  with  holes,  or  unites  or  cements 
together,  or  does  anything  else  to  any  bank  notes,  so  as  to 
render  them  unfit  to  be  re-issued  by  the  banking  association, 
shall  be  liable  to  a  penalty  of  fifty  dollars,  recoverable  to  the 
association. 

§  86.  Replacing  Mutilated  Notes.  The  Comptroller  shall 
receive  worn-out  or  mutilated  circulating  notes  of  any  national 
bank,  and,  on  due  proof  of  the  destruction  of  any  such  notes, 
deliver  in  place  thereof  other  blank  notes  to  an  equal  amount. 
After  a  memorandum  has  been  entered  in  the  proper  books, 
all  such  worn-out  or  mutilated  notes,  and  also  all  circulating 
notes  which  have  been  paid  or  surrendered  to  be  cancelled, 
shall  be  destroyed  by  maceration  in  the  presence  of  four  per- 
sons, one  to  be  appointed  by  the  Comptroller,  one  by  the 
Treasurer,  one  by  the  Secretary  of  the  Treasury,  and  one  by 
the  association,  subject  to  such  regulations  as  the  Secretary 
of  the  Treasury  may  direct.  A  certificate  of  such  maceration, 
signed  by  the  parties  so  appointed,  shall  be  made  in  the 
books  of  the  Comptroller  and  a  duplicate  sent  to  the  bank 
whose  notes  are  thus  cancelled. 

§  87.  Reserve  Required.  Every  national  bank  in  Albany, 
Baltimore,  Boston,  Cincinnati,  Chicago,  Cleveland,  Detroit, 
Louisville,  Milwaukee,  New  Orleans,  New  York,  Philadelphia, 
Pittsburg,  Saint  Louis,  San  Francisco  and  Washington,  shall, 
at  all  times,  have  on  hand,  in  lawful  money  of  the  United 


THE  NATIONAL  BANK  ACT.  45 

States,  an  amount  equal  to  twenty-five  per  cent,  of  its  de- 
posits ;  and  every  other  national  bank  must  have  fifteen  per 
cent,  of  its  deposits  on  hand  in  lawful  money,  at  all  times. 

When  the  lawful  money  of  any  association  shall  fall  below 
that  just  mentioned,  it  shall  not  increase  its  liabilities  by 
making  any  new  loans  or  discounts  except  by  discounting  or 
purchasing  bills  of  exchange,  payable  at  sight;  nor  declare 
any  dividends  of  its  profits,  until  the  required  reserve  of  law- 
ful money  has  been  restored.  The  Comptroller  may  notify 
any  association,  whose  reserve  is  below  the  required  amount, 
to  make  good  such  reserve ;  and  if  such  association  fail,  for 
thirty  days  thereafter,  so  to  make  good  its  lawful  reserve  of 
lawful  money,  the  Comptroller  may,  with  the  concurrence  of 
the  Secretary  of  the  Treasury,  appoint  a  receiver  to  wind  up 
the  business  of  the  association. 

§  88.  Proportion  of  Reserve  Allowed  in  Reserve  Cities. 
Three-fifths  of  the  fifteen  per  cent,  reserve  required  to  be 
kept  by  the  foregoing  section  may  consist  of  balances  due  to 
an  association,  available  for  the  redemption  of  its  circulation, 
from  national  banks  doing  business  in  the  sixteen  cities  named 
in  the  preceding  section.  Clearing-house  certificates,  repre- 
senting specie  or  lawful  money,  specially  deposited  for  the 
purpose,  shall  be  deemed,  within  the  preceding  section,  to  be 
lawful  money  in  the  possession  of  the  association  belonging 
to  any  such  Clearing-house,  holding  and  owning  such  certifi- 
cate. 

§  89.  Approved  Reserve  Agents.  Each  national  banking 
association  organized  in  any  of  the  sixteen  reserve  cities, 
named  in  §  87,  may  keep  one-half  of  its  lawful-money  reserve 
in  cash  deposits  with  some  national  bank  in  the  city  of  New 
York.  This  provision  does  not  apply  to  banks  in  San  Fran- 
cisco organized  for  the  purpose  of  issuing  notes  payable  in 
gold. 

Each  bank  outside  of  the  cities  named  shall  select  sub- 
ject to  the  approval  of  the  Comptroller,  an  association  in 


46  THE  BUSINESS  OF  BANKING. 

one  of  the  sixteen  cities  named,  at  which  it  will  redeem  its 
circulating  notes  at  par.  The  Comptroller  shall  give  public 
notice  of  the  name  of  the  association  at  which  the  respective 
associations  will  redeem  their  notes,  and  of  any  change  that 
may  be  made  of  the  association  at  which  the  notes  of  any 
bank  are  to  be  redeemed.  Should  any  bank  organized  under 
the  National  Bank  Act  fail  to  select  a  reserve  city,  or  to 
redeem  its  notes  as  aforesaid,  the  Comptroller  may  appoint  a 
receiver  to  close  up  the  business  of  any  such  bank. 

But  this  section  shall  not  relieve  any  association  from  re- 
deeming its  notes  at  its  own  counter  at  par,  in  lawful  money, 
on  demand. 

§  90.  Extension  of  Reserve  Cities.  In  1887  Congress 
enacted  that  whenever  three-fourths  of  the  national  banks 
located  in  any  city  of  the  United  States,  having  a  population 
of  fifty  thousand,  shall  make  application  to  the  Comptroller, 
in  writing,  asking  that  the  name  of  such  city  be  added  to  the 
cities  named  in  §  87,  the  Comptroller  shall  have  authority  to 
grant  such  request;  and  every  national  bank  located  in  such 
city  shall  thereafter,  at  all  times,  have  on  hand,  in  lawful 
money,  twenty-five  per  cent,  of  its  deposits  as  provided  in 
§§  87  and  88. 

Likewise  when  three-fourths  of  the  national  banks  located 
in  any  city  of  the  United  States  having  a  population  of  two 
hundred  thousand  shall  make  application  to  the  Comptroller, 
in  writing,  asking  that  such  city  be  made  a  central  reserve 
city,  like  New  York,  in  which  one-half  of  the  lawful-money 
reserve  of  the  national  banks  of  other  reserve  cities  may  be 
deposited,  as  provided  in  §  89,  the  Comptroller,  with  the 
Treasurer's  approval,  shall  have  authority  to  grant  such 
request,  and  every  national  bank  located  in  such  city  shall  at 
all  times  have  on  hand,  in  lawful  money  of  the  United  States, 
twenty-five  per  cent,  of  its  deposits. 

§  91.  Redemption  Fund.  Every  national  bank  shall  at 
all  times  have  on  deposit  in  the  Treasury  of  the  United  States, 


THE  NATIONAL  BANK  ACT.  47 

in  lawful  money,  a  sum  equal  to  five  per  cent,  of  its  circula- 
tion, to  be  held  and  used  for  the  redemption  of  such  circu- 
lation. Such  sum  shall  be  counted  as  part  of  the  bank's 
lawful  reserve  as  required  by  §  87  ;  and  when  the  circulating 
notes  of  any  such  bank  shall  be  presented  for  redemption,  in 
sums  of  one  thousand  dollars,  or  any  multiple  thereof,  to  the 
Treasurer  of  the  United  States,  the  same  shall  be  redeemed 
in  United  States  notes.  The  Treasurer  shall  charge  the  asso- 
ciation issuing  the  same  with  all  notes  so  redeemed,  and  he 
shall  give  notice  to  the  association,  on  the  first  of  each  month, 
or  oftener,  of  the  amount  of  such  redemption.  Whenever 
such  redemptions  for  any  association  shall  amount  to  the 
sum  of  five  hundred  dollars,  such  association  so  notified  shall 
deposit  with  the  Treasurer  a  sum  in  United  States  notes  equal 
to  the  amount  of  its  notes  so  redeemed. 

And  all  national  bank  notes,  worn-out,  or  mutilated,  or  other- 
wise unfit  for  use,  shall,  when  received  by  any  Assistant 
Treasurer,  or  of  any  designated  depository  of  the  United 
States,  be  forwarded  to  the  Treasurer  of  the  United  States 
for  redemption  as  herein  provided.  And  when  such  redemp- 
tion shall  have  been  so  reimbursed,  the  circulating  notes  so 
redeemed  shall  be  forwarded  to  the  issuing  association  ;  but  if 
any  such  notes  are  worn-out,  defaced,  mutilated,  or  other- 
wise unfit  for  use,  they  shall  be  sent  to  the  Comptroller  and 
destroyed  and  replaced  as  provided  by  law  :  Provided,  That 
each  of  said  associations  shall  reimburse  to  the  Treasury  the 
charges  for  transportation,  and  the  costs  for  assorting  such 
notes,  and  such  charges  and  costs  shall  be  in  proportion  to 
the  circulating  notes  redeemed,  and  be  charged  to  the  five 
per  cent,  fund  on  deposit  with  the  Treasurer. 

In  1882  an  amendment  was  enacted  providing  that  banks 
making  a  deposit  for  the  redemption  of  their  notes  should  bo 
assessed  for  the  cost  of  transportation  and  redeeming  their 
notes  at  the  time  of  making  the  five  per  cent,  deposit. 

§  92.  Gold-  note  Banks.  Banks  may  be  organized  in  the 
manner  described  in  §§  78  and  79,  for  the  purpose  of  issuing 


48  THE  BUSINESS  OF  BANKING. 

notes  payable  in  gold;  and  upon  a  deposit  of  any  United 
States  bonds,  bearing  interest  payable  in  gold,  with  the  Treas- 
urer of  the  United  States  in  the  manner  described  for  other 
associations,  the  Comptroller  shall  issue  to  such  association 
circulating  notes  of  the  same  denominations  as  other  banks, 
but  not  exceeding  in  amount  eighty  per  cent,  of  the  par  value 
of  the  bonds  deposited,  which  notes  shall  express  the  promise 
of  the  association  to  pay  them,  upon  presentation,  in  gold 
coin  of  the  United  States,  and  they  shall  be  so  redeemable. 

§  93.  Reserve  on  Circulation  of  Gold  Notes.  Associations 
organized  under  §  92  shall  at  all  times  keep  on  hand  at  least 
twenty-five  per  cent,  of  their  outstanding  circulation,  in  silver 
or  gold  coin,  and  shall  receive,  at  par,  in  payment  of  debts, 
the  gold  notes  of  every  other  such  association  which  at  the 
time  of  payment  is  redeeming  its  notes  in  gold  coin.  In  this 
connection,  lawful  money  shall  be  construed  to  mean  gold  or 
silver  coin  of  the  United  States. 

§94.  Gold  Certificates.  In  1882  Congress  authorized  the 
Secretary  of  the  Treasury  to  receive  deposits  of  gold  coin,  in 
sums  not  less  than  twenty  dollars,  and  to  issue  certificates 
therefor  in  denominations  not  less  than  twenty  dollars  each. 
The  coin  so  deposited  must  be  retained  in  the  Treasury  as  a 
special  deposit  for  the  payment  of  the  certificates  on  demand. 

Gold  certificates  are  legal  tender  for  customs,  taxes,  and 
all  public  dues,  and  when  so  received  may  be  re-issued.  Na- 
tional banks  holding  either  gold  or  silver  certificates  may 
count  such  certificates  as  part  of  their  lawful  reserve. 

No  national  bank  shall  be  a  member  of  any  Clearing-house 
in  which  such  certificates  are  not  receivable  in  settlement  of 
balances. 

Should  the  gold  coin  and  gold  bullion  in  the  Treasury  fall 
below  $100,000,000,  the  Secretary  shall  suspend  the  issue  of 
such  gold  certificates. 

§  95.  Treasury  Certificates.  Any  national  bank  may  de- 
posit, without  interest,  United  States  notes  with  the  Secretary 


THE  NATIONAL  BANK  ACT. 


49 


of  the  Treasury,  in  sums  not  less  than  ten  thousand  dollars, 
and  receive  therefor  certificates  issued  as  the  Secretary  may 
direct,  in  denominations  not  less  than  five  thousand  dollars, 
and  payable  in  United  States  notes.  The  notes  deposited 
shall  not  be  counted  as  part  of  the  lawful  reserve,  but  the 
certificates  issued  therefor  may  be  so  counted,  and  may  be 
accepted  in  settlement  of  Clearing-house  balances  at  the  place 
where  the  deposits  were  made. 

The  issue  of  such  United  States  Treasury  certificates  shall 
not  be  exercised  so  as  to  create  any  contraction  or  expansion 
of  the  currency  ;  but  the  United  States  notes  deposited  shall 
be  held  as  a  special  deposit  for  the  payment  of  such  certifi- 
cates. 

§  96.  Issue  of  Other  Notes.  No  national  banking  associa- 
tion shall  issue  post-notes  or  any  other  notes  to  circulate  as 
money  other  than  such  as  are  authorized  by  the  provisions  of 
this  Title,  but  the  issuing  of  a  certificate  of  deposit  shall  not 
be  considered  as  a  violation  of  this  section. 

§  97.  Other  Restrictions.  First.  The  direct  or  indirect 
pledge  or  hypothecation  of  a  bank's  notes  or  circulation,  for 
the  purpose  of  creating  or  increasing  the  capital  stock,  or 
procuring  money  to  be  paid  in  on  the  capital  stock,  or  to-be 
used  in  banking  operations,  is  prohibited. 

Second.  No  national  bank  shall  pay  out  or  put  in  circula- 
tion any  national  bank  notes  which  it  will  not  receive  at  par 
in  payment  of  debts  due  to  it ;  nor  shall  any  association  know- 
ingly pay  out  or  put  in  circulation  the  notes  of  any  bank 
which,  at  the  time,  is  not  redeeming  its  circulating  notes  in 
lawful  money  of  the  United  States. 

Third.  All  national  bank  officers  and  all  United  States  offi- 
cers who  receive  and  disburse  public  moneys  shall  stamp  or 
mark  in  plain  letters  the  word  "counterfeit,"  " worthless"  or 
"  altered"  upon  all  fraudulent  notes  intended  to  circulate  as 
money,  which  shall  be  presented  at  their  place  of  business. 
If  any  officer  wrongfully  stamp  any  genuine  note,  he  shall, 
Upon  presentation,  redeem  such  note  at  the  face  value  thereof. 


50  THE  BUSINESS  OF  BANKING. 

§  98.  Voluntary  Liquidation.  ' '  Any  association  may  go 
into  liquidation  and  be  closed  by  the  vote  of  its  shareholders 
owning  two-thirds  of  its  stock." 

§  99.  Notice.  When  a  vote  is  taken  to  go  into  liquida- 
tion the  board  of  directors  must  give  notice  to  the  Comptrol- 
ler of  the  Currency,  and  a  notice  published  for  two  months  in 
a  newspaper  published  in  New  York,  and  also  in  a  newspaper 
published  in  the  town  where  the  bank  is  located,  or  if  there  be  no 
paper  in  that  place,  then  in  the  one  nearest  thereto,  specify- 
ing that  the  bank  is  closing  up  its  affairs,  and  notifying  the 
creditors  of  the  bank  to  present  the  notes  and  other  claims 
against  the  association  for  payment. 

§100.  Redeeming  the  Notes.  A  deposit  of  lawful  money, 
to  redeem  all  the  outstanding  circulation,  shall  be  made  with 
the  Treasurer,  by  the  association,  within  six  months  after  the 
vote  to  go  into  liquidation.  The  Treasurer  issues  duplicate 
receipts  to  the  association  and  the  Comptroller,  stating  the 
amount  received  and  the  purpose  for  which  it  was  received. 
The  money  is  paid  into  the  Treasury  and  placed  to  the  credit 
of  the  association  in  Redemption  Account. 

§  101.  Consolidation.  If  a  bank  is  closing  up  its  affairs 
to  consolidate  with  another  bank,  it  will  not  be  required  to 
redeem  its  circulation,  but  the  Comptroller  must  be  notified 
concerning  the  consolidation. 

§  1 02.  Bonds  Re- Assigned.  When  a  sufficient  deposit  of 
lawful  money,  to  redeem  the  outstanding  circulation  of  a  bank, 
proposing  to  close  up  its  affairs,  is  made,  the  bonds  deposited 
to  secure  its  notes  shall  be  re-assigned  to  it,  and  the  bank 
and  its  shareholders  shall  stand  discharged  from  any  liabilities 
upon  the  circulating  notes,  and  such  notes  will  be  redeemed 
by  the  Treasurer. 

§  103.  Destruction  of  Notes.  When  any  notes  are  re- 
deemed under  the  five  preceding  sections,  the  Treasurer  shall 
cause  such  notes  to  be  mutilated  and  charged  to  the  Redemp- 
tion Account  of  the  association  ;  and  all  notes  so  redeemed  by 


THE  NATIONAL  BANK  ACT.  51 

the  Treasurer  shall,  every  three  months,  be  certified  to,  and 
destroyed  by  maceration. 

§  104.  Failure  to  Take  up  Bonds.  Should  a  bank  fail  to 
take  up  its  bonds  as  provided  in  §  100,  within  thirty  days  after 
the  expiration  of  the  time  specified,  the  Comptroller  shall 
have  power  to  sell  the  bonds  of  said  bank,  at  public  auction, 
in  New  York  city,  and,  after  providing  for  the  redemption  and 
cancellation  of  said  bank's  circulation  and  the  expenses  of 
such  sale,  to  pay  any  balance  remaining,  to  the  bank  or  its 
representatives. 

§105.  Protesting  Notes.  When  any  bank  fails  to  redeem^ 
in  lawful  money,  any  of  its  circulating  notes,  duly  presented 
at  its  office  or  designated  place  of  redemption,  the  holder 
may  have  such  notes  protested,  in  one  package,  by  a  notary 
public,  unless  the  proper  officers  admit  in  writing  that  they 
will  waive  notice  of  protest.  The  notary  public,  on  making 
the  protest  or  receiving  said  admission,  shall  forthwith  forward 
such  protest  or  admission  to  the  Comptroller,  retaining  a  copy 
thereof.  If  the  refusal  to  redeem  is  caused  by  the  order  of 
any  court  of  competent  jurisdiction,  no  protest  shall  be  made. 
If  more  than  one  package  or  note  be  protested  in  one  day, 
payment  will  be  allowed  for  but  one  protest. 

Protest  fees  must  be  paid  by  the  person  procuring  the  pro- 
test to  be  made,  and  the  association  shall  be  liable  therefor; 
but  no  part  of  the  bonds  deposited  by  the  bank  shall  be  ap- 
plied to  pay  such  fees. 

All  expenses  of  preliminary  or  other  examination,  and  of 
any  receivership,  shall  be  paid  out  of  the  assets  of  such  asso- 
ciation before  distribution  of  the  proceeds  thereof. 

§  1 06.  Forfeiture  of  Bonds.  Upon  receipt  of  notice^  as  in 
the  preceding  section,  the  Comptroller,  with  the  concurrence 
of  the  Secretary  of  the  Treasury,  shall  appoint  a  special 
agent  who  shall  carefully  investigate  the  matter  and  report  to 
the  Comptroller.  If  he  ascertains  that  the  bank  has  refused 
to  redeem  its  notes,  the  Comptroller  shall,  within  thirty  days, 


52  THE  BUSINESS  OF  BANKING. 

•declare  the  bonds  deposited  by  the  association,  to  be  forfeited 
to  the  United  States,  and  they  shall  thereupon  be  so  forfeited. 

§  107.  After  Protest.  After  default  of  any  bank  to  pay 
its  notes  has  been  ascertained  by  the  Comptroller  and  he  has 
notified  it,  it  shall  not  thereafter  prosecute  the  business  of 
banking,except  to  receive  and  keep  safe,  money  belonging  to 
it,  and  to  deliver  special  deposits. 

§  1 08.  Notice  to  Note  Holders.  As  soon  as  the  Comp- 
troller has  declared  the  bonds  of  a  bank  forfeited  for  non- 
payment of  its  notes,  he'  shall  give  notice  to  the  holders  of 
the  circulating  notes  of  such  bank,  to  present  them  at  the 
Treasury  for  payment ;  and  they  shall  be  paid  in  lawful  money 
of  the  United  States  ;  whereupon  the  Comptroller  may,  in  his 
discretion,  cancel  an  amount  of  bonds  pledged  by  the  bank, 
equal,  at  market  value,  not  exceeding  par,  to  the  notes  paid. 

§  109.  Sale  of  Bonds.  Instead  of  cancelling  the  bonds  as 
provided  in  the  preceding  section  they  may,  after  thirty  days' 
notice  to  the  bank,  be  sold  at  auction  in  New  York  city,  the 
association  receiving  any  balance  remaining  after  paying  for 
the  notes,  the  expenses  of  the  sale,  etc.  Should  the  proceeds 
of  the  bonds  thus  sold  be  insufficient  to  re-imburse  the  United 
States  for  redeeming  the  bank's  notes,  the  United  States  shall 
have  a  paramount  lien  upon  all  its'assets ;  and  such  deficiency 
shall  be  made  good  out  of  such  assets  before  any  and  all  other 
claims,  except  the  necessary  cost  of  administering  the  same. 

If  the  Comptroller  deems  it  to  the  interest  of  the  United 
States,  he  may  sell  the  bonds  at  private  sale,  for  not  less  than 
the  current  market  value  and  not  less  than  par ;  but  no  sale 
of  bonds,  either  public  or  private,  shall  be  complete  until  the 
transfer  of  bonds  shall  have  been  made  with  the  formalities 
prescribed  in  §  74. 

§  no.  Cancellation.  All  national  bank  notes  presented 
at  the  Treasury  for  payment,  shall,  upon  being  paid,  be  can- 
celled and  destroyed  by  maceration  as  provided  in  §  103. 


THE  NATIONAL  BANK  ACT.  53 

VII.     INTEREST. 

§111.  Rate  Permitted.  Any  national  banking  association 
may  take,  receive  and  charge,  on  any  loan  or  discount  made, 
or  upon  any  note,  bill  or  other  evidence  of  debt,  interest  at 
the  rate  allowed  by  the  laws  of  the  state,  territory  or  district 
wherein  the  bank  is  located  ;  unless  the  state  fixes  a  different 
rate  for  banks  of  issue  organized  under  its  laws,  when  such 
rate  shall  be  allowed  to  banks  organized  under  this  Title. 
When  no  rate  is  fixed  by  the  laws  of  the  state,  banks  may 
charge  a  rate  not  exceeding  seven  per  cent.,  and  such  interest 
may  be  taken  in  advance,  reckoning  the  days  for  which  the 
note  or  other  evidence  of  debt  has  to  run.  The  purchase, 
discount  or  sale  of  a  bona  fide  bill  of  exchange,  payable  at 
anciher  place  than  the  place  of  purchase,  discount,  or  sale,  at 
not  more  than  the  current  rate  of  exchange  for  sight  drafts 
in  addition  to  the  interest,  shall  not  be  considered  as  taking 
or  receiving  a  greater  rate  of  interest. 

§  1 1 2.  Penalty  for  Illegal  Interest.  The  taking  of  a  rate 
of  interest  greater  than  is  allowed  by  the  preceding  section, 
when  knowingly  done,  shall  be  deemed  a  forfeiture  of  the 
entire  interest  which  the  paper  carries  with  it,  and  which  has 
been  agreed  to  be  paid  thereon.  In  case  the  greater  rate  has 
been  paid,  the  person  by  whom  it  has  been  paid,  or  his  legal 
representatives,  may  recover  back,  from  the  association  vio- 
lating, in  an  action  in  the  nature  of  an  action  for  debt,  twice 
the  amount  of  interest  thus  paid  ;  Provided,  That  such  action 
is  begun  within  two  years  from  the  occurrence  of  the  usurious 
transaction. 

VIII.       JURISDICTION,    PLEADING   AND    EVIDENCE. 

§  1 13.  What  Courts.  National  banks  have  power  to  sue 
and  be  sued,  complain  and  defend,  in  any  court  of  law  or 
equity,  as  fully  as  natural  persons.  All  national  banks,  shall, 
for  the  purpose  of  all  actions  by  or  against  them,  and  all  suits 
in  equity,  be  deemed  citizens  of  the  states  in  which  they  are 


54  THE  BUSINESS  OF  BANKING. 

respectively  located ;  and  in  such  cases  the  circuit  and  district 
courts  shall  not  have  jurisdiction  other  than  such  as  they 
would  have  in  cases  between  individual  citizens  of  the  same 
state. 

Cases  begun  by  the  United  States,  or  by  direction  of  any 
officer  thereof,  or  cases  for  winding  up  the  affairs  of  any  bank, 
may  be  tried  in  the  Federal  courts  and  the  provisions  herein 
shall  not  affect  such  jurisdiction. 

§  1 14.  Who  to  Conduct  Suit.  "All  suits  and  proceedings 
arising  out  of  the  provisions  of  law,  governing  national  bank- 
ing associations,  in  which  the  United  States  or  any  of  its 
officers  or  agents  shall  be  parties,  shall  be  conducted  by  the 
district  attorneys  of  the  several  districts  under  the  direction 
and  supervision  of  the  Solicitor  of  the  Treasury." 

§  115.  Evidence.  Every  assignment,  certificate  or  other 
document,  issued  by  the  Comptroller,  in  pursuance  of  law, 
bearing  the  seal  of  his  office,  shall  be  received  in  evidence  in 
all  places  and  courts  ;  and  all  copies  of  such  documents  in  the 
Comptroller's  office  shall  in  all  cases  be  evidence  equally  with 
the  original. 

An  impression  of  the  seal  directly  on  the  paper  shall  be  as 
valid  as  if  made  on  wax  or  on  a  wafer. 

§  1 1 6.  Organization  Certificate  as  Evidence.  Certified 
copies  of  the  organization  certificate,  authenticated  by  the 
Comptroller's  seal,  shall  be  evidence  in  all  places  and  courts 
of  the  existence  of  the  association,  and  of  every  matter  which 
could  be  proved  by  the  production  of  the  original  certificate. 

IX.       CRIMINALITY. 

§  1 17.  Embezzlement.  Section  5209  of  the  Revised  Stat- 
utes of  the  United  States,  which  is  as  follows,  covers  most  of 
the  violations  of  the  National  Bank  Act : 

"  Every  president,  director,  cashier,  teller,  clerk  or  agent,  of 
any  association,  who  embezzles,  abstracts,  or  willfully  misap- 
plies, any  of  the  moneys,  funds,  or  credits,  of  the  association ; 


THE  NATIONAL  BANK  ACT. 


55 


or  who,  without  authority  from  the  directors,  issues  or  puts 
into  circulation,  any  of  the  notes  of  the  association ;  or  who, 
without  such  authority,  issues  or  puts  forth  any  certificate  of 
deposit,  draws  any  order  or  bill  of  exchange,  makes  any 
acceptance,  assigns  any  note,  bond,  draft,  bill  of  exchange, 
mortgage,  judgment,  or  decree;  or  who  makes  any  false  entry 
in  any  book,  report,  or  statement  of  the  association,  with 
intent,  in  either  case,  to  injure  or  defraud  the  association  or 
any  other  company,  body  politic  or  corporate,  or  any  indi- 
vidual person,  or  to  deceive  any  officer  of  the  association,  or 
any  agent  appointed  to  examine  the  affairs  of  any  such  asso- 
ciation ;  and  every  person  who  with  like  intent  aids  or  abets 
any  officer,  clerk,  or  agent  in  any  violation  of  this  section, 
shall  be  deemed  guilty  of  a  misdemeanor,  and  shall  be  impris- 
oned not  less  than  five  years  nor  more  than  ten  years." 

§  1 1 8.  United  States  Securities.  The  term,  "obligation 
or  other  security  of  the  United  States,"  shall  be  construed  to 
mean  all  bonds,  certificates  of  indebtedness,  national  bank 
currency,  coupons,  United  States  notes,  Treasury  notes,  frac- 
tional notes,  certificates  of  deposit,  bills,  checks,  or  drafts  for 
money,  drawn  by  or  upon  any  authorized  officer  of  the  United 
States,  stamps  and  other  representatives  of  value  which  may 
be  issued  by  Congress. 

§  119.  Illegal  Use  of  Plates  and  Bank-note  Paper.  Ev- 
ery person  having  the  custody  or  control  of  any  plates  used 
or  to  be  used  for  printing  any  obligation  or  other  security  of 
the  United  States,  who  uses  or  permits  the  same  to  be  used 
for  printing  any  such  obligation  or  other  security,  except  as 
may  be  printed  for  the  United  States,  by  order  of  the  proper 
officer ;  and  every  person  who  engraves  or  assists  or  procures 
to  be  engraved  any  plate  in  the  likeness  of  any  plate  designed 
for  printing  such  obligation,  or  who  has  such  plate  or  plates 
in  his  possession,  except  under  the  direction  of  the  Secretary  of 
the  Treasury  or  other  proper  officer,  or  with  any  intent,  in 
either  case,  other  than  that  such  plate  be  used  for  the  printing 


56  THE  BUSINESS  OF   BANKING. 

of  the  obligations,  or  other  securities  of  the  United  States;  or, 
who  has  in  his  possession  or  control,  except  under  authority  of 
the  proper  officer,  any  such  obligation  or  other  security  engraved 
and  printed  in  the  likeness  of  any  such  security  of  the  United 
States,  with  intent  to  sell  or  otherwise  use  the  same ;  and 
every  person  who  prints,  photographs,  makes,  or  otherwise 
executes,  or  causes  to  be  executed,  or  aids  in  executing  any 
such  print,  photograph,  or  impression,  or  who  sells  any  such 
print,  etc.,  except  to  the  United  States,  or  who  brings  into 
the  United  States  any  such  print,  etc.,  except  by  direction  of 
the  proper  officer  of  the  United  States,  shall  be  punished  by  a 
fine  of  not  more  than  five  thousand  dollars,  or  by  imprison- 
ment at  hard  labor  not  more  than  fifteen  years,  or  by  both. 

§120.  Passing  Counterfeit  Notes.  "  Every  person  who, 
with  intent  to  defraud,  passes,  sells,  or  attempts  to  pass  or 
sell,  or  keeps  in  possession  or  conceals  with  like  intent,  any 
forged,  altered,  counterfeited,  or  falsely  made  obligation  or 
other  security  of  the  United  States,  shall  be  punished  as  pro- 
vided in  the  preceding  section." 

§  121.  Taking  Impressions.  The  penalty  for  illegally 
taking  impressions  of  or  from  any  bed-plate,  bed-piece,  die, 
roll,  plate,  seal,  type,  or  any  other  tool  or  instrument  used 
for,  or  intended  to  be  used  for  printing  or  making  any  obliga- 
tion or  other  security  of  the  United  States,  or  any  national 
bank  note,  upon  lead,  foil,  wax,  paper,  or  any  other  substance 
or  material,  or  who  has  in  his  possession  any  such  impression, 
is  fixed  at  not  more  than  ten  years'  imprisonment,  or  a  fine 
of  not  more  than  five  thousand  dollars,  or  both. 

§  122.  Counterfeiting  National  Bank  Notes.  Every  per- 
son who  falsely  makes,  forges,  or  counterfeits,  or  procures  to  be 
counterfeited,  or  aids  in  counterfeiting,  any  note  in  imitation 
of  the  circulating  notes  of  any  national  bank,  or  who  passes, 
sells,  or  attempts  to  pass  or  sell,  any  false  or  counterfeit 
national  bank  note,  knowing  the  same  to  be  counterfeited,  or 
who  falsely  alters,  or  who  has  anything  to  do  with  altering 


THE   NATIONAL  BANK  ACT.  57 

any  such  note,  or  in  passing  or  circulating  the  same,  knowing 
it  to  be  falsely  altered  or  spurious,  shall  be  imprisoned  at 
hard  labor  for  not  less  than  five  years  nor  more  than  fifteen 
years,  and  fined  not  more  than  one  thousand  dollars. 

§  123.  Dealing  in  Forged  Notes.  The  penalty  for  buy- 
ing, selling,  exchanging,  transferring,  receiving  or  delivering, 
any  false,  altered,  forged  or  counterfeited,  obligation  or  other 
security  of  the  United  States,  or  any  circulating  note  of  any 
national  bank,  is  fixed  at  imprisonment  not  more  than  ten 
years,  or  fine  not  more  than  five  thousand  dollars,  or  both. 

§124.  Circulating  Closed-Bank  Notes.  After  a  national 
bank's  charter  has  expired,  or  it  has,  for  any  other  reason, 
been  terminated  and  has  ceased  doing  business,  if  any  director, 
officer  or  other  agent,  knowingly,  issues,  or  in  any  way  know- 
ingly puts  into  circulation,  any  bill,  note,  check,  draft,  or  any 
other  security  purporting  to  be  the  act  of  such  bank,  or  if  any 
person  aids  in  such  act,  he  shall  be  punished  by  a  fine  of  not 
more  than  ten  thousand  dollars,  or  by  imprisonment  not  less 
than  one  year  nor  more  than  five  years,  or  by  both. 

This  section  applies  only  to  directors,  officers,  or  agents  of 
the  corporation,  or  any  person  who  has  the  possession  or  con- 
trol of  the  property  of  the  corporation  for  the  purpose  of  pay- 
ing and  redeeming  its  notes  and  obligations. 

X.      DISSOLUTION   AND   RECEIVERSHIP. 

§  125.  Protest.  For  the  regulations  relating  to  protest- 
ing national  bank  notes,  when  the  bank  fails  to  redeem  the 
same/see  §§  105,  106,  107,  108  and  109. 

§  126.  When  the  Comptroller  becomes  satisfied,  as  speci- 
fied in  §§  105  and  106,  that  any  association  has  refused  to 
pay  its  circulating  notes  as  therein  mentioned,  he  may  forth- 
with appoint  a  receiver,  and  require  of  him  such  bonds  and 
security  as  he  may  deem  proper.  Under  the  direction  of  the 
Comptroller,  said  receiver  shall  take  possession  of  the  books, 
records  and  effects  of  every  description  of  such  association. 


58  THE  BUSINESS  OF  BANKING. 

He  shall  collect  all  debts,  dues  and  other  claims  belonging  to 
it,  and,  under  the  direction  of  the  court,  may  sell  all  the  prop- 
erty of  such  association,  and  may  sell  or  compound  all  bad  or 
doubtful  debts;  and  may,  if  necessary  to  pay  all  debts,  enforce 
the  individual  liability  of  the  shareholders  as  prescribed  in 
§  134.  All  moneys  must  be  paid  to  the  Treasurer,  subject  to 
the  order  of  the  Comptroller,  and  the  receiver  must  report  all 
his  acts  to  the  Comptroller. 

§  127.  Notice.  "The  Comptroller  shall,  upon  appointing 
a  receiver,  cause  notice  to  be  given,  by  advertisement  in  such 
newspaper  as  he  may  direct,  for  three  consecutive  months, 
calling  on  all  persons  who  may  have  claims  against  such  asso- 
ciation, to  present  the  same,  and  to  make  legal  proof  thereof." 

§  128.  Dividends  to  Creditors.  From  time  to  time,  after 
provision  has  been  made  for  refunding  to  the  United  States 
any  deficiency  in  redeeming  the  notes  of  such  bank,  the 
Comptroller  shall  make  a  ratable  dividend  of  all  money  paid 
over  to  him  by  such  receiver,  on  all  claims  proven  to  his  sat- 
isfaction, and,  as  the  proceeds  of  the  effects  of  the  association 
are  paid  over  to  him,  he  shall  make  further  dividends  on  all 
claims  previously  proven ;  and  the  remainder,  if  any,  shall  be 
paid  over  to  the  shareholders  of  the  association,  as  provided 
in  the  next  succeeding  section. 

§  129.  Election  of  Agent.  After  the  receiver  has  reported 
and  the  Comptroller  has  paid  all  the  creditors  of  the  bank, 
except  the  shareholders,  as  provided  in  the  preceding  section, 
he  shall  call  a  meeting  of  the  shareholders,  by  newspaper 
notice  for  thirty  days,  at  which  meeting  the  shareholders  shall 
elect,  by  a  majority  vote,  an  agent,  who,  after  filing  a  bond 
for  faithful  performance  to  the  satisfaction  of  the  Comptrol- 
ler, shall  receive  from  the  Comptroller  and  receiver  all  the 
undivided  and  uncollected  effects  remaining  in  the  hands,  or 
subject  to  the  control  or  order,  of  said  Comptroller  and 
receiver,  or  either  of  them,  and  for  this  purpose  the  Comp- 
troller and  receiver  are  hereby  severally  empowered  to  execute 


THE  NATIONAL  BANK  ACT  59 

any  deed,  transfer,  assignment  or  other  instrument  in  writing 
that  may  be  necessary  ;  whereupon  the  said  Comptroller  and 
receiver  shall  be  discharged  from  any  and  all  liabilities  to  the 
association,  and  each  and  all  creditors  and  shareholders 
thereof.  Such  agent  shall  have  power  to  sell  and  otherwise 
dispose  of  the  remaining  property  of  the  bank  and  to  distrib- 
ute the  proceeds  pro  rata  among  the  shareholders,  until  all  is 
disposed  of. 

§  1 30.  Forfeiture  of  Franchise.  If  the  directors  of  any 
national  bank  shall  knowingly  violate,  or  permit  any  of  the 
officers  or  servants  of  the  bank  to  violate,  any  of  the  provi- 
sions of  this  Title,  all  rights,  privileges  and  franchises  of  the 
association  shall  be  thereby  forfeited.  Such  violation,  how- 
ever, must  be  determined  by  a  proper  court,  in  a  suit  brought 
for  that  purpose,  by  the  Comptroller  in  his  own  name,  before 
the  association  shall  be  declared  dissolved. 

§  131.  When  Receiver  May  be  Appointed.  Whenever  the 
charter  of  any  association  is  declared  forfeited  as  provided  in 
the  preceding  section,  or  whenever  any  creditor  shall  have 
obtained  a  judgment  against  it,  and  made  application  accom- 
panied by  a  certificate  from  the  clerk  of  the  court,  that  such 
judgment  has  remained  unpaid,  for  thirty  days,  or  when  the 
Comptroller  becomes  satisfied  that  any  such  bank  is  insolvent, 
he  may,  in  either  case,  appoint  a  receiver  who  shall  proceed 
to  close  up  such  association  and  enforce  the  personal  liability 
of  the  shareholders  as  provided  in  §  134. 

§  132.  Right  to  Enjoin.  If  any  association,  against  which 
procedings  have  been  instituted  on  account  of  alleged  refusal 
to  redeem  its  notes,  as  hereinbefore  mentioned,  denies  such 
charges,  it  may,  within  ten  days  after  it  has  been  notified  of 
the  appointment  of  an  agent,  as  already  provided,  apply  to 
the  nearest  district,  territorial  or  circuit  court,  to  enjoin  fur- 
ther action ;  and  if  such  court,  after  due  investigation,  finds 
that  such  association  has  not  refused  to  redeem  its  notes 
when  duly  presented,  it  shall  make  an  order  enjoining  the 


5o  THE  BUSINESS  OF  BANKING. 

Comptroller,  and  any  receiver,  from  further  proceedings  or* 
account  of  such  alleged  refusal. 

§  133.  Voluntary  Liquidation,  and  Notice.  See  §§  9*5 
and  99. 

§  1 34.  Individual  Liability  of  Shareholders.  The  share- 
holders of  every  national  bank  shall  be  held  individually 
responsible,  equally  and  ratably,  for  all  contracts,  debts  and 
engagements  of  the  association,  to  the  extent  of  the  amount 
of  their  stock  therein,  at  the  par  value  thereof,  in  addition  to 
the  amount  invested  in  such  shares.  If  the  bank  goes  into 
liquidation  under  §  98,  the  individual  liability  mentioned 
herein  may  be  brought  by  any  creditor  of  the  association,  by 
a  bill  in  equity  in  the  nature  of  a  creditor's  bill,  in  behalf  of 
himself  or  all  the  creditors,  against  the  shareholders  of  such 
association,  in  any  proper  court. 

XI.     EXAMINATIONS  AND    REPORTS. 

§  135.  Bank  Examinations.  As  often  as  he  deems  it 
necessary,  the  Comptroller,  with  the  approval  of  the  Secre- 
tary of  the  Treasury,  shall  appoint  a  suitable  person,  or  per> 
sons,  to  make  an  examination  of  every  national  bank,  who 
shall  have  power  to  examine  thoroughly  into  the  affairs  of  th^; 
bank,  and  in  doing  so,  to  examine,  on  oath,  any  of  the  offi- 
cers or  agents  of  the  association ;  and  shall  make  a  detailed 
report  of  the  same  to  the  Comptroller.  No  director  or  officer 
shall  be  appointed  to  examine  any  bank  for  which  he  is  a 
director  or  officer. 

§  136.  Compensation.  The  compensation  for  examining 
national  banks  outside  of  the  redemption  cities,  and  the  states 
of  Oregon,  California  and  Nevada,  is  as  follows :  Banks, 
with  a  capital  less  than  $100,000,  $20;  capital  $100,000  ancl 
less  than  $300,000,  $25;  capital  $300,000  and  less  than  $400,- 
ooo,  $35;  capital  $400,000  and  less  than  $500,000,  $40;  capi- 
tal $500,000  and  less  than  $600,000,  $50;  capital  $600,000 
and  over,  $75.  This  compensation  is  assessed  against,  and 
must  be  paid  by,  the  association  examined. 


THE  NATIONAL  BANK  ACT.  61 

Banks  situated  in  the  reserve  cities  and  in  Oregon,  Califor- 
nia and  Nevada  shall  pay  for  examination  such  compensation 
as  the  Comptroller,  with  the  approval  of  the  Secretary  of  the 
Treasury,  may  fix. 

§  137.  The  Comptroller  is  further  authorized  to  have  ex- 
amined, any  bank  in  the  District  of  Columbia  organized  by 
the  acts  of  Congress,  and  the  result  may  be  reported  to  Con- 
fgress.  The  compensation  for  such  examination  shall  be  paid 
out  of  any  appropriations  made  by  Congress  for  special  bank 
examinations. 

§  138.  Visitation.  National  banks  are  subject  to  no  vis- 
itorial  powers  other  than  specified  in  the  two  preceding  sec- 
tions. 

§  139.  Reports.  Every  national  bank,  savings  bank,  sav- 
ings and  trust  company,  shall  make  to  the  Comptroller  not 
less  than  five  reports  during  each  year.  Such  reports  shall 
be  verified  by  the  oath  or  affirmation,  properly  administered, 
of  the  president  or  cashier  of  such  association  and  attested  by 
the  signatures  of  at  least  three  of  the  directors.  Each  such 
report  shall  exhibit  in  detail,  under  such  headings  as  the 
I  Comptroller  may  prescribe,  the  resources  and  liabilities  of 
the  association  at  the  close  of  business  on  any  past  day  by 
him  specified;  and  shall  be  transmitted  to  the  Comptroller 
within  five  days  after  the  receipt  of  a  request  therefor  from 
him;  and  in  the  same  form  as  made  to  the  Comptroller  it 
shall  be  published  in  a  newspaper  printed  in  the  town  where 
the  bank  is  located,  or  if  there  is  none,  then  in  the  one  near- 
est thereto,  in  the  same  county,  and  at  the  expense  of  the 
association;  and  the  Comptroller  may  require  proof  of  such 
publication. 

The  Comptroller  shall  also  have  power  to  call  for  special 
reports  as  often  as  he  may  deem  necessary. 

§  140.  Report  of  Dividends.  Within  ten  days  after  any 
association  has  declared  any  dividend,  it  shall  report  to  the 
Comptroller  of  the  Currency  the  amount  of  such  dividend, 
and  the  amount  of  net  earnings  in  excess  of  such  dividend. 


62  THE  BUSINESS  OF  BANKING. 

Such  report  shall  be  attested  by  the  oath  of  the  president 
or  cashier  of  the  bank,  or  savings  or  trust  company. 

§  141.  Penalty.  Every  association  which  fails  to  make 
and  remit  any  report  required  by  either  of  the  two  preceding 
sections  shall  be  subject  to  a  penalty  of  one  hundred  dollars 
for  each  day  that  it  delays  to  make  such  report.  The  penalty 
just  mentioned  may  be  retained  by  the  Treasurer  upon  order 
of  the  Comptroller,  out  of  the  interest,  as  it  may  become  due 
to  any  national  bank,  on  the  bonds  deposited  to  secure  the 
circulation;  and  the  penalties  from  savings  banks,  savings  and 
trust  companies  may  be  collected  by  suit  before  any  court  of 
the  United  States  in  the  district  wherein  the  association  is 
located. 

All  sums  of  money  collected  for  penalties  under  this  sec- 
tion shall  be  paid  into  the  Treasury. 

XII.     TAXATION. 

§  142.  Taxing  the  Shares.  Shares  in  any  national  bank 
are  to  be  included  in  the  personal  property  of  the  owner  oi 
such  shares,  in  assessing  taxes  imposed  by  authority  of  the 
state  within  which  the  association  is  located ;  but  the  legisla- 
ture of  each  state  may  prescribe  the  manner  and  place  of 
taxing  all  the  shares  of  national  banks  located  within  said, 
state,  subject  to  only  two  restrictions :  first,  that  the  taxation 
shall  not  be  at  a  greater  rate  than  is  assessed  upon  other 
moneyed  capital  in  the  hands  of  individual  citizens  of  such 
state  ;  and  second,  that  the  shares  of  any  national  bank, 
owned  by  non-residents  of  any  state,  shall  be  taxed  in  the 
city  or  town  wherein  the  bank  is  located,  and  not  elsewhere. 

Nothing  herein  shall  be  construed  to  exempt  the  real  prop- 
erty of  associations  from  state,  county  or  municipal  taxes, 
the  same  as  other  real  property  is  taxed. 

§  143.  Exemption  on  Circulation.  Whenever  the  out- 
standing circulation  of  any  bank,  association,  corporation, 
company,  or  person  is  reduced  to  an  amount  not  exceeding 


THE  NATIONAL  BANK  Aci.  03 

five  per  cent,  of  the  capital  stock  existing  at  the  time  the  same 
was  issued,  said  circulation  shall  be  free  from  the  taxation 
provided  by  §  149;  and  whenever  a  bank,  which  has  ceased 
to  issue  notes  for  circulation,  deposits  money  with  the 
Treasurer  for  their  redemption,  as  provided  in  §  100,  it  shall 
be  exempt  from  any  tax  on  such  circulation. 

§  144.  Tax  on  Other  Bank  Notes.  Every  banking  asso- 
ciation, whether  national,  state  or  private,  shall  pay  a  tax  of 
ten  per  cent,  on  the  amount  of  notes  of  any  person,  com- 
pany, state  bank,  or  state  banking  association,  used  for  circu- 
lation by  it.  The  bank,  or  person  who  issues  said  notes,  is 
subject  to  the  same  tax. 

§  145.  Tax  on  Other  Notes.  Every  banking  association, 
whether  national,  state  or  private,  shall  pay  a  tax  of  ten  per 
cent,  on  the  amount  of  notes  of  any  town,  city  or  municipal 
corporation,  put  in  circulation  by  it. 

§  146.  Statement  of  Circulation.  To  provide  for  collect- 
ing the  tax  mentioned  in  the  two  preceding  sections,  Con- 
gress has  required  that  every  banking  association  shall  make 
a  true  and  complete  return  of  the  monthly  amount  of  circu- 
lation, of  the  monthly  amount  of  notes  of  town,  city,  munici- 
pal, person,  state  and  private  banks  paid  out  for  the  previous 
six  months,  and  the  same  shall  be  made  in  duplicate  on  the 
first  day  of  June  and  the  first  day  of  December  of  each  year, 
by  each  of  such  associations.  Such  return  shall  be  accompa- 
nied by  a  declaration,  under  oath,  of  such  person,  or  the 
president  or  cashier,  that  the  same  is  a  true  and  faithful 
statement  of  the  amounts  subject  to  taxation.  One  copy  of 
the  same  shall  be  sent  to  the  collector  of  the  district  in  which 
such  association  is  located,  or  in  which  such  person  has  his 
place  of  business,  and  one  copy  shall  be  sent  to  the  Commis- 
sioner of  Internal  Revenue,  who  may  prescribe  the  form  of 
such  statement. 

§  147.  Penalty.  If  any  person,  company  or  association 
fails  to  make  the  return  provided  in  the  preceding  section,  the 


64  THE  BUSINESS  OF  BANKING. 

Commissioner  of  Internal  Revenue  may  estimate  the  amount 
of  notes  contemplated  therein,  upon  the  best  information  he 
can  obtain.  And  for  any  refusal  or  neglect  to  make  such 
return  and  payment,  the  person,  company  or  association  shall 
pay  a  penalty  of  two  hundred  dollars,  besides  the  additional 
penalties  and  forfeitures  prescribed  in  other  cases. 

§  148.  Return  on  Circulation  of  State  Banks  Converted. 
If  any  state  bank  be  converted  into  a  national  bank,  and  such 
national  bank  has  assumed  all  the  liabilities  of  such  state 
bank,  including  the  redemption  of  its  notes,  it  must  make 
returns  and  pay  the  tax  already  provided,  on  such  notes,  as 
long  as  they  exceed  five  per  cent,  of  the  capital  stock  of  such 
state  bank  before  conversion. 

§  149.  United  States  Tax.  The  only  tax  on  national 
banking  associations  is  a  semi-annual  duty  of  one-half  of  one 
per  cent,  on  the  average  amount  of  its  notes  in  circulation. 
This  duty  or  tax  of  one  per  cent,  a  year  is  payable  to  the 
Treasurer  in  the  months  of  January  and  July. 

§  150.  Semi- Annual  Return  on  Circulation.  In  order  to 
enable  the  Treasurer  to  assess  the  tax  specified  in  the  pre- 
ceding section,  each  association  shall  make,  within  ten  days 
of  the  first  of  January  and  July,  of  each  year,  a  return,  under 
oath  of  its  president  or  cashier,  to  the  Treasurer,  in  such 
form  as  he  may  direct,  of  the  average  amount  of  its  circula- 
tion for  the  six  months  next  preceding  the  report. 

The  penalty  for  failure  to  make  such  report  is  fixed  at  two 
hundred  dollars,  to  bo  collected  out  of  the  interest  due  to  the 
association  on  its  bonds  on  deposit,  or,  at  the  option  of  the 
Treasurer,  in  the  manner  in  which  the  penalties  are  to  be 
collected  of  other  corporations  under  the  laws  of  the  United 
States. 

§  151.  Refund  of  Excess.  If  an  association  has  paid  or 
may  pay  in  excess  of  what  may  be  or  has  been  found  to  be  due 
from  it,  on  account  of  the  duty  required  to  be  paid  to  the 
Treasurer,  the  association  may  state  an  account  therefor, 


THE  NATIONAL  BANK  ACT.  65 

which,  on  being  certified  by  the  Treasurer,  and  found  correct 
by  the  First  Comptroller  of  the  Treasury,  shall  be  refunded 
in  the  ordinary  manner  by  warrant  on  the  Treasury. 

XIII.       CONVERSION    OF     STATE    BANK     TO    NATIONAL    BANK,    AND 

VICE    VERSA. 

§  152.  From  State  to  National.  Any  state  bank  may  be- 
come a  national  association  under  this  Title  by  the  name  pre- 
scribed in  its  organization  certificate.  The  articles  of  asso- 
ciation and  organization  certificate  may  be  executed  by  a 
majority  of  the  directors  of  the  state  bank,  and  the  certificate 
shall  declare  that  the  owners  of  two-thirds  of  the  capital 
stock  of  such  state  bank  have  authorized  the  directors  to 
convert  the  institution  into-  a  national  association.  The 
shares  may  continue  to  be  for  the  same  amount,  and  the 
directors  may  continue  to  be  the  directors  of  the  new  associ- 
ation until  others  are  elected  or  appointed.  As  soon  as  the 
Comptroller's  certificate  authorizing  the  association  to  begin 
the  business  of  banking  under  the  national  law  has  been 
received,  it  shall  then  be  in  all  respects  the  same  as  other 
national  banks. 

$  i  53.  From  National  to  State.  It  is  most  generally  held 
that  in  order  for  a  national  bank  to  change  to  a  state  institu- 
tion, it  will  be  necessary  for  the  national  association  to  close 
up  its  affairs  as  already  provided,  in  $§  98  and  99.  In  which 
case,  after  its  affairs  are  all  settled,  the  property  may  be  used 
to  form  a  state  bank. 


CHAPTER  IV. 


THE  BOARD  OF  DIRECTORS,  AND  THEIR  POWERS. 


§154.  The  board  and  its  selection. 

155.  Qualification. 

156.  Oath  of  office 

157.  Regarding  the  board. 

158.  Same. 

159.  Notice  of  meetings. 

160.  What  constitutes  a  quorum. 

161.  Contract  between  the  bank  and 

the  directors. 

162.  May  assign  securities. 

163.  Compromise. 

164.  May  act  without  seal. 

165.  Imputation  of  knowledge. 

166.  Directors  personally  liable. 

167.  Wrongs  of  directors. 

168.  Misconduct,  exceeding  authori- 

ty, etc. 

169.  Failure  to  examine  the  books. 
370.  Must  have  knowledge  of  fraud. 
171.   Directors  not  personally  liable. 
572.   Required  to  use  reasonable  dili- 
gence. 

173.  Meeting  of  directors. 

174.  Routine  of  business. 

175.  Compensation. 

176.  Increasing  the  capital  stock. 


177.  Selling  the  increased  stock. 

178.  Place  of  doing  business. 

179.  Manager. 

180.  Duties  begin. 

181.  Detecting  frauds. 

182.  Powers  to  discount  paper. 

183.  The  highest  function  of  a  bank, 

184.  Remarks  by  George  Walker. 

185.  Loan  on  bills. 

186.  Speculative  loans. 

187.  Questionable  loans. 

188.  Security  for  loans. 

189.  Limitation  on  loans. 

190.  National  banks  are  not  govern- 

ment institutions. 

191.  Effect  of  state  laws. 

192.  Regarding  dividends. 

193.  Directors    not    liable    for    bad 

judgment. 

194.  May  omit  to  declare  a  dividend, 

when  there  is  no  profit. 

195.  Dealing  in  bonds. 

196.  Relating  to  real  estate. 

196*7.  Stock  of  real  estate  corporations. 
196^.  Selling  real  estate. 

197.  Officers. 


§  154.  "All  the  powers  of  a  national  banking  association 
are  exercised  through  its  board  of  directors.  As  a  general 
rule  it  may  be  said  that  associations  will  prosper  just  in  pro- 
portion as  their  directors  are  intelligent  and  faithful.  The 
details  of  the  business  must,  of  course,  be  in  charge  of  its  offi- 
cers, and  the  duty  of  selecting  these  is  one  of  the  greatest 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  67 

responsibilities  devolving  upon  the  board  ;  for  unless  the  active 
managers  are  skillful,  honest  and  attentive,  the  affairs  of  the 
association  cannot  prosper." 

Every  successful  institution  must  have  competent  advisors. 
A  successful  governmental  administration  is  largely  due  to  the 
wisdom  shown  in  appointing  a  good  cabinet  ;  and  the  success 
of  a  national  bank  is,  in  a  great  measure,  due  to  the  acts  of 
its  board  of  directors.  The  selection  of  the  board  of  directors 
is  in  the  hands  of  the  shareholders,  and  their  choice  may  not, 
in  every  case,  be  for  their  best  interests.  Yet  most  directors 
have  good  intentions,  when  they  enter  on  their  duties,  whether 
or  not  they  afterward  become  more  solicitous  for  their  own 
interest  than  for  the  welfare  of  the  bank.  Each  director 
should  be  a  shrewd,  honest  business  man — the  more  experi- 
ence he  has  had  the  better.  It  is  not  necessary  that  every 
one  who  is  placed  on  the  board  should  be  an  experienced 
manager  ;  in  fact  the  incumbents  of  nearly  all  positions  acquire 
the  knowledge  and  methods,  which  make  their  work  a  suc- 
cess after  they  assume  the  responsibilities  of  such  office.  As 
with  every  one  else,  a  board  of  directors  attain  success  after 
a  series  of  seeming  failures  ;  but  a  little  experience  goes  a  long 
way,  and  if  the  personnel  of  such  a  body  be  of  the  proper 
kind,  with  the  interests  of  the  bank  above  their  own  interests, 
there  is  but  little  to  fear. 

§  i  55.  Qualifications.  A  bank  director  must  own  in  his  own 
right  at  least  ten  shares  of  the  capital  stock  of  the  bank  of 
which  he  is  a  director,  and  the  same  must  not  be  hypothe- 
cated, or  in  any  way  pledged  for  debt.  And  as  already  sug- 
gested, he  ought  to  be  selected  on  account  of  his  probable 
fitness  for  such  a  place,  rather  than  from  a  consideration  of 
the  number  of  shares  he  may  own. 

If  a  director  is  elected  by  a  less  number  of  votes  than  is 
required  by  the  charter,  he  is  a  de  facto  director  and  can  bind 
the  bank  by  his  acts  as  such.  A  de  facto  director  or  a  direc- 


68  THE  BUSINESS  OF  BANKING. 

tor  de  jure  can  bind  his  bank;  and  his  acts  are  valid  even 
after  selling  his  stock.  The  law  states  that  the  officer  shall 
be  a  stockholder,  but  there  is  no  statutory  regulation  that  a 
vacancy  shall  be  deemed  to  exist  if  the  officer,  before  his  term 
expires,  shall  cease  to  be  a  stockholder/ 

§  156.  Oath  of  Office.  At  the  first  meeting  of  the  newly 
elected  directors  each  must  take  an  oath  of  office  couched  in 
the  following  words  : 

'  'I,  the  undersigned,   Director  of  The 

Bank,  of  the  city  of ,  of  the  county 

of ,  of  the  state  of ,  do  solemnly 

swear  that  I  am  a  citizen  of  the  United  States  and  resident 

of  the  State  of ,  and  that  I  will,  so  far  as  the 

duty  devolves  on  me,  diligently  and  honestly  administer  the 
affairs  of  said  Bank;  and  that  I  will  not  knowingly  violate,  or 
willingly  permit  to  be  violated,  any  of  the  provisions  of  the 
Revised  Statutes  of  the  United  States,  under  which  this  Bank 
has  been  organized;  and  that  I  am  the  bona  fide  owner,  in  my 
own  right,  of  the  number  of  shares  of  stock  subscribed  by  me 
or  standing  in  my  name  on  the  books  of  the  said  Bank,  and 
required  by  said  Revised  Statutes;  and  that  the  same  is  not 
hypothecated  or  in  any  way  pledged  as  security  for  any  loan 
or  debt.  GEORGE  W.  WYERMAN." 

"Subscribed  and  sworn  to  this  first  day  of  September,  1892, 
before  the  undersigned,  of  said  county. 

O.  C.  BAKKE, 
Notary  Public." 

The  cashier  must  see  to  it  that  the  oaths  of  the  directors 
are  at  once  sent  to  the  Comptroller  of  the  Currency.  If  the 
directors  are  not  present  at  the  first  regular  meeting  after 
their  election,  it  is  customary  to  have  a  notary  hunt  them  up 
and  administer  the  oath,  that  the  cashier  may  send  to  the 
Comptroller  the  oaths  of  the  full  board. 

The  National  Bank  Act  fixes  the  minimum  number  of  direc- 
tors at  five.  There  is  no  other  limit  to  the  number  which  a 

aDesp.  Line  of  Packets  v.  Bellamy  Mf'g  Co.,  12  N.  H.,  205. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  69 

bank  may  have.  Most  banks  have  from  nine  to  thirteen, 
though  some  have  but  five  and  others  as  many  as  twenty-five; 
and  nearly  all  have  an  odd  number. 

§  1 5 7.  Regarding  the  Board.  The  affairs  of  every  national 
bank  are  conducted  by  the  board  of  directors,  acting  as  a 
board.  The  individual  members  of  a  board  have  no  power 
separately.  They  must  act  in  the  capacity  of  a  board  with  a 
quorum  present.  Notice  to  one  director  is  not  notice  to  the 
bank,  neither  can  the  promise  of  one  director,  nor  even  the 
promise  of  all  the  directors  separately,  bind  the  bank,  for  one 
has  no  separate  power. 

The  election  of  an  individual  as  a  director  does  not  consti- 
tute him  an  agent  of  the  corporation  with  authority  to  act 
separately  and  independently  of  his  fellow  members.  It  is 
the  board  duly  convened  and  acting  as  a  unit  that  is  made 
the  representative  of  the  association.  The  assent  or  deter- 
mination of  the  members  of  the  board,  acting  separately  and 
individually,  is  not  the  assent  of  the  corporation.  The  law 
proceeds  upon  the  theory  that  the  directors  shall  meet  and 
counsel  with  each  other,  and  that  any  determination  affecting 
the  association  shall  be  arrived  at  and  expressed  only  after  a 
consultation  at  a  meeting  of  the  board,  attended  by  at  least  a 
majority  of  its  members. b 

In  taking  the  oath  of  office,  if  a  director  willfully  mis-states 
regarding  the  number  of  shares  which  he  owns,  and  that  the 
same  are  not  hypothecated,  or  otherwise  pledged  for  debt, 
when  in  fact  they  are  so  pledged,  he  will  be  deemed  guilty  of 
perjury  and  punished  accordingly. 

§  158.  The  directors  are  not  the  body  corporate.  For  all 
purposes  of  dealing  with  others,  they  may  be  considered  the 
corporation  ;  yet  they  are  but  officers,  the  same  as  the  cashier 
and  other  officers.  A  director's  power  is  limited,  and  every 
one  who  deals  with  him,  when  he  exceeds  that  limit,  does  so 
at  his  peril.  A  director  has  no  delegated  power  to  act  for  the 

b  Bank  v.  Drake,  35  Kansas,  564. 


70  THE  BUSINESS  OF  BANKING. 

association;  of  course,  he  may  be  given  such  power,  or  any 
special  power,  by  the  acts  of  the  board.  The  directors  are 
not  only  agents  of  the  corporation,  but  are  also  trustees  for 
the  creditors  and  shareholders,  and  in  this  capacity  they 
must,  in  good  faith,  follow  the  terms  of  the  charter,  or  they 
will  be  liable  for  any  loss  that  may  occur  from  such  breach 
of  trust. 

When  a  director  is  elected  he  must  either  accept  or  refuse 
the  place.  If  he  does  not  refuse  he  is  presumed  to  have  ac- 
cepted, though  if  he  does  not  attend  the  meetings  for  several 
months  he  cannot  be  presumed  to  have  accepted  even  though 
his  name,  as  director,  may  have  frequently  appeared  in  the 
papers.  If  he  does  not  accept,  he  is  not  a  director  and  can- 
not be  held  liable  as  such. 

§  1 59.  Notice  of  Meetings.  Often  the  charter  or  by-laws 
prescribe  that  the  directors  shall  have  notice  of  meetings  and 
the  nature  of  the  business  to  be  transacted.  On  this  point 
Justice  Magie  says:0  As  each  director  is  entitled  to  take  part 
in  the  exercise  of  the  power,  each  is  entitled  to  notice.  No- 
tice may  be  given  by  the  adoption  of  rules  fixing  the  times 
for  stated  meetings;  constructive  notice  will  be  sufficient  if 
some  rule,  legally  prescribed,  declares  it  sufficient;  but  for 
special  meetings,  in  the  absence  of  a  rule  for  constructive 
notice,  actual  notice  must  be  given.  In  the  absence  of  such 
notice,  a  special  meeting  will  not  be  legally  convened. 

Notice  need  not  be  in  writing,  and  for  the  transaction  of 
ordinary  business  need  not  specify  the  purpose  of  the  meeting, 

§  1 60.  .  What  Constitutes  a  Quorum.  After  the  meeting 
is  called,  it  is  important  to  know  what  unanimity  is  necessary 
to  render  the  directors'  actions  legal.  The  charter,  or  by-laws, 
often  specify  how  many  members  shall  constitute  a  quorum, 
and,  of  course,  these  provisions  must  be  followed.  If  a  quo- 
rum is  present,  a  majority  of  these  may  legally  transact  busi- 
ness. Justice  Potter  says:d  "  In  case  of  a  definite  body,  like 

c  Metropolitan  Telephone  &  Telegraph  Co.  v.  Domestic   Telegraph  &  Tele- 
phone Co.,  44  N.  J.  Eq.,  568. 

d  Lockwood  z\  Bank,  g  R.  I.,  308. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  71 

a  board  of  bank  directors,  a  majority  must  be  present  at  a 
regular  meeting;  or,  at  a  special  meeting,  notified  according 
to  by-law,  if  there  be  any,  or  otherwise  reasonably  notified, 
all  the  members  (except  in  cases  of  absence  at  a  distance), 
without  fraud  or  attempt  at  surprise,  and  at  such  meeting  a 
majority  of  those  present  can  act  for  the  whole." 

§  161.  Contract  between  the  Bank  and  the  Director.  The 
question  whether  a  director  may  contract  with  his  bank  has 
been  variously  viewed  by  the  courts.  A  director  of  a  corpo- 
ration is  not  absolutely  prohibited  by  law  from  entering  into 
a  contract  with  the  corporation  through  his  co-directors. 
Whether  such  a  contract  is  binding  must  depend  upon  its 
terms  and  the  circumstances  under  which  it  was  made.  Ow- 
ing to  the  peculiar  relation  which  the  directors  hold  to  the 
corporation,  being  strictly  trustees,  and  their  position  being 
in  every  sense  fiduciary,  their  contracts  with  the  corporation 
should  be  scanned,  if  not  with  suspicion,  at  least  with  the 
most  scrupulous  care.  If  the  effect  of  the  provisions  of  such 
contract  be  pernicious  and  tends  to  work  a  fraud  on  the 
rights  of  the  corporation  and  stockholders,  the  directors  must 
be  regarded  as  having  no  authority  to  enter  into  it.e 

Unless  prohibited  by  statute,  directors  may  loan  the  money 
of  their  bank  to  themselves.  While  the  officers  of  a  bank 
ought  never  to  be  borrowers,  yet  the  president,  cashier  or 
directors  of  a  national  bank  may  borrow  money  from  the 
bank,  the  same  as  any  other  person  may,  and  execute  a  valid 
note  for  the  same  that  will  bind  them  as  well  as  the  bank 
receiving  it;  and  such  note  is  not  void,  nor,  in  the  absence  of 
fraud,  can  such  a  note  be  repudiated  or  avoided  by  the  bank, 
by  reason  of  that  relation. 

Directors  cannot  legally  loan  the  bank's  money  to  them- 
selves at  less  than  the  ordinary  rate,  nor,  if  the  by-laws  limit 
the  amount  to  be  loaned  to  directors,  can  they  exceed  such 
limit. 

*  Angel  &  Ames  on  Corp.,  233. 
f  Blair  r.  Bank,  2  Fillipin,  in. 


72  THE  BUSINESS  OF  BANKING. 

On  this  point  Ex-Comptroller  Lacey  says  that  there  is  a 
disposition  exhibited  by  some  directors  to  monopolize  the 
loans  and  discounts  of  the  bank,  thus  converting  to  their  own 
use  the  funds  of  others  intrusted  to  their  keeping,  thereby 
exposing  the  bank  to  losses  by  reason  of  want  of  proper  dis- 
tribution of  its  loans,  and  subjecting  to  inconvenience  those 
customers  of  the  bank  who  are  not  favored  with  a  place  at 
the  directors'  table.  Such  inattention  and  selfishness  are  too 
often  the  characteristics  of  bank  directors  and  are  productive 
of  serious  consequences,  but  when  accompanied,  as  they 
sometimes  are,  by  lack  of  integrity  the  most  direful  results 
are  realized. 

§162.  May  Assign  Securities.  Directors  have  power  to 
assign  or  transfer  the  securities  belonging  to  the  bank,  or  they 
may  delegate  one  of  their  number  to  assign  them/  And  the}' 
have  power  to  borrow  money  for  their  bank.  It  is  a  well 
settled  law  that  a  corporation  may  borrow  money  for  ordinary 
business,  and  may  give  its  obligation  for  the  money  borrowed, 
and  it  likewise  has  the  right,  instead  of  giving  its  own  obliga- 
tion, to  turn  over  its  assets  to  secure  the  payment  of  money 
so  borrowed.11 

§  163.  Compromise.  Settlement  of  a  loss  or  defalcation, 
by  compromise,  does  not  fall  within  the  ordinary  powers  of  a 
corporation,  which  may  be  exercised  by  its  agents;  but  power 
to  do  such  acts  must  be  conferred  by  the  board  of  directors, 
and  any  profit  arising  from  compromise  by  directors  must  go 
to  the  association.1 

§  164.  May  Act  without  Seal.  The  doctrine  is  now  en- 
tirely exploded  that  corporations  can  contract  only  under 
their  corporate  seal.  They  may  contract  by  vote  entered  on 
the  books  of  the  association,  and  binding  contracts  may  be 
implied  from  corporate  acts,  without  vote,  deed  or  writing, 

*  Stevens  v.  Hill,  29  Maine,  133. 
h  Clarke.  Titcomb,  42  Barb.,  122. 
>  Bank  v.  Bailhache,  65  Cal.,  327. 


THE  BOARD  OF  DIRECTORS  AND  THETR  POWERS.  73 

and  they  are  bound  by  contracts  made  by  their  agents  within 
the  scope  of  their  authority. 

§  165.  Imputation  of  Knowledge.  It  is  important  to 
know  when  notice  to  directors  is  notice  to  the  bank.  It  is 
generally  supposed  that  a  director  should  be  conversant  with 
the  ordinary  affairs  of  the  bank,  and  especially  such  as  a  gen- 
eral examination  of  the  ledgers,  books  and  statements  of  the 
bank  would  reveal.  It  is  the  duty  of  directors  to  acquaint 
themselves  with  the  ordinary  affairs  of  their  bank,  and  what 
the  directors  know  the  bank  is  supposed  to  know.  If,  how- 
ever, a  director  has  notice  when  not  acting  officially,  it  would 
not  be  notice  to  the  bank. 

§  1 66.  Directors  Personally  Liable.  If  the  directors  ex- 
ceed their  authority,  or  fail  to  do  their  duty,  they  are  person- 
ally liable  to  the  bank,  and  it  can  proceed  against  them. 
And  in  case  they  are  grossly  negligent,  or  show  such  lack  of 
competency  as  to  disregard  their  duty  to  care  for  and  protect 
the  funds  in  their  charge,  they  are  responsible  directly  to  the 
depositors.  If,  for  example,  the  bank  continued  to  do  busi- 
ness when  the  slightest  examination  of  its  affairs,  by  the 
directors,  would  have  disclosed  its  insolvency,  the  directors 
would  be  liable. j 

§  167.  The  wrongs  of  directors  are:  First,  fraud  or  em- 
bezzlement committed  by  themselves. 

Second,  willful  misconduct,  or  breach  of  trust  committed  for 
their  own  benefit  and  not  for  the  benefit  of  the  stockholders. 

Third,  acts  beyond  the  chartered  power  of  the  bank,  and 
beyond  the  general  powers  conferred  by  law  upon  corporations. 

Fourth,  gross  inattention  and  negligence,  allowing  fraud  or 
misconduct  on  the  part  of  agents,  officers  or  co-directors,  which 
could  have  been  prevented  if  they  had  given  ordinary  care 
and  attention  to  their  duties. k 

§  1 68.  So  if  they  misappropriate  ^or  misapply  the  funds 
and  thereby  a  loss  occurs,  they  are  liable;  if  they  exceed  their 

J  Godbold  v.  Branch  Bank,  n  Ala.,  191. 
k  Directors  7'.  Bossieux,  4  Hughes,  387. 


74  THE  BUSINESS  OF  BANKING. 

authority  as  general  agents  they  bind  only  themselves,  not 
the  bank ;  if  by  gross  inattention  they  permit  fraud  and  mis- 
conduct by  other  officers,  they  are  liable  for  the  loss,  if  any; 
if  they  squander  the  money  put  in  their  possession,  and  there- 
by the  depositors  are  defrauded,  they  are  personally  liable ;  if 
they  discount  questionable  or  worthless  paper,  knowing  that 
it  is  questionable  or  worthless,  they  are  liable  for  any  loss 
which  occurs.  They  are  also  liable  if  they  fail  to  give  proper 
notice  to  indorsers  when  paper  is  protested,  such  failure  being 
considered  gross  neglect. 

§  169.  Failure  to  Examine  the  Books.  Perhaps  no  form 
of  directorial  negligence  is  more  common  than  failure  to  ex- 
amine the  bank's  books  when  such  examination  would  disclose 
the  wrong  doings  of  other  officers,  and  the  directors  have  re- 
peatedly been  held  personally  liable  for  such  inattention. 
Where  the  business  is  large,  of  course,  a  thorough  examina- 
tion would  entail  much  time,  but  where  a  casual  examination 
would  reveal  irregularities,  such  examination  should  be  made. 

§  1 70.  Directors  Must  Have  Knowledge  of  Fraud.  Direc- 
tors are  not  liable  for  every  fraud  and  misrepresentation  prac- 
ticed by  the  manager  or  other  officers.  They  must  have  some 
knowledge  or  participation  in  the  alleged  fraud,  for  it  is  only 
when  a  director  lends  his  name  and  influence  to  promote  a 
fraud  upon  the  community,  or  is  guilty  of  some  violation  of 
law,  or  other  mismanagement,  that  he  is  personally  liable.1 

§  1 71.  Directors  Not  Personally  Liable.  The  undertak- 
ing implies  a  competent  knowledge  of  the  duties  of  the  agency 
assumed,  as  well  as  a  pledge  that  they  will  diligently  supervise, 
watch  over  and  protect  the  interests  of  the  institution  com- 
mitted to  their  care.  They  do  not  undertake  to  possess  such 
perfect  knowledge  as  that  they  cannot  err,  or  be  mistaken, 
either  in  wisdom  or  legality  of  the  means  employed  by  them. 
To  exact  such  extreme  accuracy  of  knowledge  from  those  to 
whom,  of  necessity,  a  large  discretion  in  the  choice  of  means 

1  Arthur  v.  Church,  55  N.  Y.,  400. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS  75 

must  be  entrusted,  would  be  manifestly  wrong.  Human  wis- 
dom is  not  infallible  and  many  losses  may  occur  which  might 
have  been  avoided;  and  the  inevitable  tendency  of  such  a 
rule  would  be  hostile  to  the  end  proposed  by  it,  as  no  man  of 
ordinary  prudence  would  accept  a  trust  surrounded  by  such 
perils."1 

§  172.  Degree  of  Diligence  Required.  The  general  rule  is 
that  the  directors  are  only  required  to  keep  within  the  limit 
of  the  bank's  powers,  and  to  exercise  good  faith  and  honesty. 
They  only  undertake  to  perform  those  duties  according  to  the 
best  of  their  judgment,  and  with  reasonable  diligence.  A 
mere  error  of  judgment  will  not  subject  them  to  personal  lia- 
bility for  its  consequences.  They  are  personally  bound  only 
in  the  management  of  the  affairs  of  the  corporation  to  use 
reasonable  diligence  and  prudence,  such  as  ordinarily  prudent 
men  usually  exercise  in  the  management  of  their  own  affairs 
of  a  similar  nature." 

§  173.  Meeting /of  Directors.  In  most  banks  the  board 
meets  twice  a  week,  but  often,  in  large  banks,  they  meet 
daily.  As  in  other  things,  the  mode  of  discounting  varies  with 
different  banks.  In  the  large  cities,  the  business  manager 
passes  on  the  paper  as  soon  as  it  is  offered  for  discount. 
Money  is  wanted;  the  customers  cannot  wait,  and  they  are 
speedily  told  whether  the  loan  will  be  granted  or  not.  In 
most  country  banks  the  paper  is  taken  before  the  board  of 
directors  and  they  must  pass  upon  it. 

After  the  manager  grants  a  loan,  when  he  has  authority  to 
do  so,  he  usually  submits  it  to  the  board  for  their  approval; 
and  when  he  is  in  doubt  as  to  whether  or  not  to  grant  a  cer- 
tain loan  he  refers  it  to  the  board. 

§  174.  At  the  meeting,  the  president  is  seated  at  the  head 
of  the  table,  and  the  cashier,  who  is  the  secretary  of  the 

m  Godbold  v.  Branch  Bank,  n  Ala.,  191. 

n  Field  on  Corp.,  ££  169,  171;  Angell  &  Ames  on  Corp.,  §314;  Hodges  v. 
New  Eng.  Screw  Co.,  i  R.  I.,  312. 


76  THE  BUSINESS  OF  BANKING. 

board,  near  him.  After  the  roll  of  the  board  is  called,  the 
cashier  reads  the  minutes  of  the  last  meeting,  and  they  being 
approved,  other  business  is  taken  up.  The  discounts  and  other 
business  transacted  by  the  manager  since  the  last  meeting  is 
also  taken  up  for  ratification.  If  the  board  is  to  pass  on  dis- 
counts, and  a  single  director  objects,  the  board  will  usually  re- 
fuse it.  If  the  objection  is  only  prejudice  it  is  not  considered, 
but  if  a  director  says  he  has  good  reasons  for  refusing,  the 
board  will  refuse.  Directors  are  chosen  partly  for  the  informa- 
tion which  they  may  possess  regarding  the  condition  of  business, ! 
and  especially  of  those  in  the  lines  of  business  in  which  they 
themselves  are  engaged.  A  director  will  know  more  about 
the  financial  condition  of  persons  engaged  in  the  same  busi- 
ness as  himself,  than  other  directors,  and  this  is  why  a  direc- 
tor's opinion  has  so  much  weight. 

§  175.  Compensation.  Too  often  the  only  compensation 
which  directors  receive  is  the  facility  for  borrowing  money 
from  the  bank  which  such  a  position  may  offer.  In  some 
small  or  country  banks,  when  loans  to  directors  are  properly 
secured,  this  mode  of  remuneration  may  be  better  than  direct 
compensation,  but  usually,  when  the  position  is  not  honorary, 
direct  payment  is  the  easiest,  safest  and  most  economical 
mode  of  remunerating  bank  directors.  Some  men  will  not 
accept  a  position  on  the  board  unless  they  receive  a  stipulated 
pecuniary  compensation,  and  this  is  a  trait  to  be  generally 
commended. 

If,  however,  they  are  elected  to  serve  without  compensa- 
tion, they  cannot  be  compensated  by  their  own  action.  "We 
regard  it  as  contrary  to  all  sound  policy  to  allow  a  director, 
elected  to  serve  without  compensation,  to  recover  payment 
for  services  performed  by  him,  in  that  capacity,  or  as  inci- 
dental to  his  office."0  Neither  can  a  director  increase  his  sal- 
ary by  his  own  action.  If  a  director  serves  outside  of  his 
capacity  as  director,  such  as  secretary,  attorney  or  other  officer, 

°Am.  Central  R.  R.  Co.  v.  Miles,  52  111!.  174. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  77 

he  may  be  paid  for  such  services  the  same  compensation  as 
any  other  person,  if  employed  to  render  the  same  service. p 

§  176.  Increasing  the  Capital  Stock.  The  capital  stock 
of  a  national  bank  can  be  increased  only  in  the  manner  pro- 
vided by  law.q  There  are  three  things  to  be  done  : 

1.  The  association  shall  assent  to  an  increased  amount. 

2.  The  whole  of  such  increase  shall  be  paid  in  as  a  part 
of  the  capital  of  such  association. 

3.  The  Comptroller  of  the  Currency  shall,  by  his  certificate, 
certify  to  the  increase. 

Two-thirds  of  the  stockholders  must  assent  to  the  increase, 
the  whole  amount  must  be  paid  in,  and  the  consent  of  the 
Comptroller  must  be  obtained/ 

§177.  Selling  the  Increased  Stock.  At  what  price  shall 
new  stock  be  sold  ?  The  Bank  Act  contains  no  provisions  on 
this  subject.  The  par  of  the  stock  is  one  hundred  dollars. 
But  at  what  price  shall  the  new  stock  be  sold  when  the  old 
stock  is  at  a  premium  ?  This  is  the  question  which  con- 
fronted a  Boston  bank  a  short  time  ago.  Some  of  the  board 
favored  $100,  others  $150. 

If  sold  at  par  the  value  of  the  present  stock  would  be  re- 
Juced.  The  higher  the  price  the  more  valuable  the  stock 
will  be. 

The  best  way  to  sell  increased  stock  is  at  auction  in  lots 
that  will  be  easily  disposed  of ;  the  next  best  way  is  to  sell  to 
shareholders  at  a  premium  ;  the  poorest  way  is  to  sell  at  par 
stock  that  is  worth  $150,  or  any  fair  premium. 

§  178.  Place  of  Doing  Business.  National  banks  must 
transact  all  their  business  of  banking  at  the  place  designated 
in  the  articles  of  association,  except  such  as  the  messenger 
may  transact  when  not  in  the  bank,  etc.  They  may,  of 
course,  employ  other  banks  as  agents  for  collections,  etc.,  but 

P  Rogers  v.  Hastings  &  Dak.  R.  R.  Co.,  22  Minn.,  25;  Chandler*/.  Bank,  4 
Hals.,  101. 

*  See  §  65 . 

*  Delano  v.  Butler,  uSU.  S.,  634. 


78  .THE  BUSINESS  OF  BANKING. 

they  cannot  set  up  branch  offices  for  the  transaction  of  the 
regular  banking  business. 

The  provisions  requiring  "the  usual  business"  of  the  asso- 
ciation to  be  transacted  "  at  an  office  or  banking-house  in  the 
place  specified  in  its  organization  certificate"  must  be  con- 
strued reasonably  ;  and  a  part  of  the  legitimate  business  of  the 
association,  which  cannot  be  transacted  at  the  banking-house 
may  be  done  elsewhere.8 

According  to  §  44,  providing  that  ' '  the  usual  business  of  each 
national  banking  association  shall  be  transacted  at  an  office  or 
banking-house  located  in  the  place  specified  in  its  organiza- 
tion certificate,"  a  national  bank  cannot  make  a  valid  con- 
tract for  the  cashing  of  checks  upon  it  at  a  different  place 
from  that  of  its  residence,  through  the  agency  of  another  bank.1 

The  same  rule  pertains  to  state  banks  organized  under  the 
state  laws.  Much  trouble  has  been  experienced  in  this  con- 
nection in  Iowa,  lately,  and  the  Attorney  General  has  handed 
down  the  following  opinion : 

COUNCIL  BLUFFS,  Iowa,  July  25,  1892. 
Hon.  James  A.  Lyons,  Auditor  of  State,  Des  Moines,  lou'a  : 

DEAR  SIR  :  I  am  in  receipt  of  yours  of  July  i$th,  in  which  you  ask  for  my 
opinion  on  the  following  questions  : 

1.  Can  a  bank  incorporated  under  the  laws  of  Iowa  have  a  branch  bank  in 
the  same  town  or  city  where  the  bank  is  located,  for  the  reception  of  deposits, 
issuing  of  drafts,  and  other  transactions  in  connection  with  its  business  ? 

2.  Can  such  a  bank  have  a  branch  or  branches  in  different  cities  and 
towns? 

3.  Can  such  a  bank  have  a  "branch  office"  or  "branch  department"  in  the 
town  or  city  where  located  for  the  transaction  of  its  business? 

I  am  of  the  opinion  that  all  these  questions  must  be  answered  in  the 
negative.  A  branch  bank  or  office  where  deposits  would  be  received,  drafts 
issued,  and  all  the  other  functions  of  a  bank  performed,  would  be  in  effect  a 
separate  banking  esablishment.  The  laws  of  the  State  of  Iowa  providing  for 
the  supervision  and  control  of  banks  contemplated  for  the  safety  of  the  public 
an  intimate  and  thorough  examination  of  and  reports  concerning  the  business 
of  each  bank.  I  do  not  think  it  was  within  the  meaning  and  purpose  of 

sBank   v.  Bank,  10  Wall,  604. 

1  Armstrong  v.  Bank,  38  Fed.  Rep.,  883. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  79 

these  laws  to  permit  several  separate  banking  establishments  to  aggregate 
themselves  and  do  business  under  one  certificate.  There  is  no  difference  in 
principle  between  the  consolidation  of  several  previously  independent  banks 
under  single  articles  of  incorporation  and  the  multiplication  of  one  bank  int.. 
several  by  the  process  of  establishing  branch  banks  or  departments.  Such 
branches  would  not  be  the  usual  and  ordinary  agencies  used  by  banks  for  the 
transaction  of  their  business  in  other  localities.  A  bank  may  use  other  banks 
as  its  agents  for  collections,  discounts,  etc.,  but  the  establishment  of  a  branch 
bank  in  the  manner  indicated  by  the  above  questions  would  be  in  essence  and 
effect  the  establishment  of  a  separate  banking  institution.  Such  an  institu- 
tion should,  I  believe,  be  required  to  obtain  a  separate  certificate  and  make 
separate  reports.  Yours  truly, 

JOHN  Y.  STONK, 

Attorney  General. 

§  1 79.  Manager.  Bank  directors  are  usually  regarded  as 
a  board  and  not  as  individuals.  In  this  capacity  they  have 
entire  control  of  the  bank's  affairs,  but,  not  unlike  every  other 
body  of  men,  there  must  be  some  one  man  who  leads  and 
really  does  all  the  managing.  The  successful  army  is  largely 
controlled  and  managed  by  one  man  ;  so  is  the  ideal  govern- 
ment ;  so  is  the  model  family ;  so  are  all  gatherings,  confer- 
ences and  meetings,  if  any  good  is  done  thereat.  So  a  bank 
must  have  a  ruling  spirit  who  guides  its  affairs  and  manages 
its  transactions,  or  it  cannot  succeed.  The  vigilance  must  be 
centered  in  one  man,  for  if  two  or  more  men  are  responsible, 
no  one  is  responsible.  There  must  be  a  manager  to  keep 
vigilance,  and  if  possible  a  man  who  is  known  to  possess  skill, 
integrity  and  suitable  experience.  If  such  an  one  cannot  be 
found,  as  is  often  the  case  in  small  banks,  then  the  man  who 
is  best  fitted  for  the  place  and  can  be  secured. 

If  the  manager  is  given  complete  control  of  the  affairs  of 
the  bank,  its  success  is  in  a  measure  assured.  He  is  responsi- 
ble for  the  general  results  of  the  business  ;  he  must  provide 
funds  to  meet  the  emergencies  of  the  bank  ;  he  must  supervise 
the  tellers  and  all  minor  officers ;  he  must  guard  against  bur- 
glary, loss  by  forgery,  and  by  theft  by  other  officials  ;  he  must 
be  ever  on  the  alert,  and  see  that  the  collections  and  all  other 
important  parts  are  punctually  attended  to. 


8o  THE  BUSINESS  OF  BANKING. 

§  i  So.  Duties  Begin.  After  the  executive  has  been  ap- 
pointed, the  duties  of  the  directors  begin.  The  chief  duty  of 
the  board  is  to  supervise,  and,  as  supervision  in  name  only  is 
worse  than  none,  it  is  the  first  duty  of  the  directors  to  attend 
the  meetings.  The  board  should  not  only  supervise  the  gen- 
eral affairs,  but  it  should  supervise  the  manager  also.  No 
man  who  is  honest,  and  is  trying  to  discharge  his  duties 
properly,  will  object  to  having  his  doings  looked  into ;  and  for 
the  good  of  the  bank  this  should  be  done.  Man  is  not  infal- 
lible and  is  liable  to  commit  errors,  and  if  he  is  the  proper 
man  for  such  a  place,  he  will  be  glad  to  have  these  pointed 
out  to  him.  If  a  man  objects  to  an  investigation  of  his  acts 
there  is  probably  something  wrong,  and  the  sooner  the  matter 
is  investigated  the  better. 

The  manager  of  a  bank  ought  to  have  authority  to  discount 
and  to  refuse  to  discount  paper  which  is  offered  for  that  pur- 
pose. Many  banks  allow  this,  and  it  gives  the  manager  author- 
ity to  pass  on  discounts  at  all  times  during  business  hours. 
To  most  borrowers  this  is  quite  an  inducement  over  having  to 
wait  until  some  stated  time,  for  the.  real  benefit  of  a  loan 
often  accrues  from  getting  it  promptly. 

When  the  executive  has  this  authority  to  grant  loans,  the 
board  should  learn  individually  whether  due  prudence  has 
been  exercised  or  not,  and  this  may  be  done  by  a  discussive 
inspection,  at  each  meeting,  of  all  the  loans  granted  since  the 
last  meeting.  This  would  enable  the  directors  to  ascertain 
the  reliability  of  the  bank's  assets,  and  the  class  of  men  with 
whom  the  bank  is  dealing. 

A  conservative  manager  will  grant  few  loans  to  his  relatives 
or  special  friends,  and  none  to  himself. 

Then  the  character  of  the  bank's  customers  determines 
very  largely  the  reputation  of  the  bank.  This  can  all  be 
determined  largely  by  a  revision  of  loans.  The  directors 
ought  to  familiarize  themselves  with  the  general  business  of 
the  bank,  and  to  do  this  they  must  regularly  inspect  the 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  8r 

books  of  accounts,  and  likewise  examine  and  question  the 
bank's  agents. 

§  181.  Detecting  Frauds.  The  aggregate  of  the  bank's 
loans  and  the  debts  past  due  are  shown  by  the  ticklers,  and 
the  manager  should  explain  such  loans  and  what  efforts  he  is 
making  to  collect  them.  Of  course  the  past-due  debts  will 
give  the  directors  a  good  general  idea  of  the  character  of  the 
bank's  customers. 

The  manager  should  also  satisfactorily  explain  any  over- 
draft that  may  have  been  perpetrated,  for  overdrafts,  in  this 
country,  are  seldom  permitted. 

Counting  the  money  and  inspecting  the  vaults  will  not 
usually  reveal  a  fraud.  A  fraud  can  generally  be  detected 
only  by  skill  equal  to  that  employed  in  the  concealment,  and 
this  requires  greater  familiarity  with  the  business,  and  more 
labor,  than  the  ordinary  director  can  be  expected  to  give. 

The  most  reliable  thing  for  a  board  of  directors  to  do,  in 
order  to  detect  fraud,  is  to  supervise  the  business  properly  and 
thus  become  familiar  with  the  general  conduct  of  the  affairs 
of  the  bank  and  of  the  manager.  A  close  scrutiny  of  the  hab- 
its and  expenses  of  the  manager,  and  other  agents,  will  often, 
reveal  shortcomings  and  peculations. 

An  insufficient  salary  sometimes  induces  a  bank's  agent  to 
begin  taking  money  for  private  use.  This  may  be  remedied 
by  a  liberal  compensation  for  the  services  rendered.  I  do  not 
mean  that  a  fabulous  salary  would  be  advisable,  but  never- 
theless it  is  a  fact,  that  wealthy  managers  are  less  liable  to 
extract  money,  unlawfully,  than  those  with  no  property.  If 
liberal  salaries  are  given,  and  thus  bank  agents  are  prevented 
from  expenditures  beyond  their  incomes,  they  may  often  be 
prevented  from  fraud. 

If  the  results  of  any  agent's  work  are  unsatisfactory,  or  the 
board  becomes  suspicious  that  anything  is  wrong,  he  should 
be  promptly  removed.  Every  man  can.  offer  excuses,  which 


82  THE  BUSINESS  OF  BANKING. 

no  one  can  refute,  yet  it  would  be  unwise  to  retain  an  agent 
whose  conduct  produces  frequent  miscarriages  and  losses. 
Nature  does  not  digress  from  her  accustomed  courses,  even 
though  some  men  would  wish  us  to  believe  that  she  does. 

§  182.  Powers  to  Discount  Business  Paper.  In  considering 
the  sixth  clause  of  §  56,  it  has  been  generally  held  that  banks 
have  a  right  to  buy  business  paper.  The  purchasing  and  dis- 
counting of  paper  is  considered  as  a  mode  of  loaning  money, 
and  a  bank  has  a  right  to  buy  notes  which  are  available  to 
the  borrower,  as  well  as  the  borrower's  own  notes  which  are 
made  payable  to  the  bank.  It  was  at  one  time  considered 
unlawful  to  buy  negotiable  paper,  that  such  purchase  was  not 
within  the  province  of  banks,  but  the  right  is  no  longer 
questioned. 

Even  when  the  word  "  bought"  or  "sold"  is  used  in  the 
transaction  it  is  considered  as  being  a  loan  of  money  by  way 
of  discount. 

Banks  may  discount  commercial  paper  as  long  as  there  is 
no  contingency,  but  it  has  no  right  to  buy  or  discount  any 
paper  containing  any  condition,  such  as  to  pay  attorney's  fee, 
if  the  paper  is  sued,  etc. 

§  183.  The  Highest  Function  of  a  Bank.  If,  when  a 
producer  has  completed  an  article,  he  could  sell  it  for  cash 
and  realize  the  profit  and  begin  over  again,  he  would  soon 
increase  his  earnings  to  an  unlimited  amount.  But  he  can- 
not usually  make  immediate  sales,  and  the  buyer  cannot 
usually  pay  cash.  It  is  often  a  long  process  from  the  pro- 
ducer to  the  final  payer,  the  consumer  ;  and  markets  may  be 
inactive  and  the  buyer  slow  to  buy,  and  often  slow  to  pay, 
so  that  producers  cannot  always  sell,  and  buyers  cannot 
always  pay.  The  producer  requires  additional  capital  to 
carry  his  wares  until  sold ;  and  the  buyer  requires  credit  to 
enable  him  to  carry  the  goods  until  re-sold.  But  a  sale  on 
credit  is  no  better  than  carrying  the  goods,  and  the  producer 
must  have  more  money  to  produce  other  goods,  or  his  busi- 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  83 

ness  must  stop  until  the  buyer  pays.  But  he  cannot  stop  a 
successful  business;  it  would  mean  large  losses  and  finally 
complete  failure.  He  must  get  money  somewhere  to  carry 
on  the  process  of  production ;  and  his  business  furnishes  the 
basis  on  which  to  get  it.  He  must  obtain  money  on  the 
property  sold.  He  cannot  pledge  the  property,  for  it  is  sold 
and  the  possession  vested  in  another ;  but  he  can  pledge  that 
which  represents  the  property — the  buyer's  written  promise 
to  pay  at  a  certain  specified  date.  In  other  words,  he  goes 
to  a  bank  and  discounts  the  buyer's  paper,  and  with  the 
money  thus  advanced  by  the  bank,  he  goes  on  with  his  busi- 
ness. This  is  probably  the  highest  function  of  a  bank  in 
serving  the  commercial  world. 

Banks  do  not  usually  lend  money  on  permanent  improve- 
ments. If  one  wishes  to  buy  lands,  build  factories,  or  make 
any  permanent  investment,  a  bank  is  not  the  place  to  seek 
the  money ;  but  if  commerce  is  being  carried  on,  or  articles 
of  commerce  produced,  then  a  bank  is  always  ready  to  assist. 

§  184.  George  Walker,  a  prominent  financial  writer,  says 
that  "  The  first  and  most  important  function  of  a  bank  is,  by 
the  use  of  the  capital  which  it  controls,  to  bridge  over  the 
periods  of  credit  which  necessarily  intervene  between  produc- 
tion and  consumption,  in  such  a  manner  as  to  give  back  to 
each  producer  or  middleman,  as  quickly  as  possible,  the  capi- 
tal invested  by  him  in  such  products,  in  order  that  he  may 
use  it  again  in  new  productions  or  new  purchases.  In  this 
way  the  interruption  of  business,  which  would  be  a  public  as 
well  as  a  private  loss,  is  avoided.  Thus  defined,  banking  is 
not  only  one  of  the  most  useful,  but  it  is  also  one  of  the  most 
safe  and  healthy  of  business  operations.  Its  safety  lies  in  the 
fact  that  each  loan,  of  the  character  described,  is  based  on 
property  of  intrinsic  value ;  and  it  is  the  property  which,  in 
the  last  resort,  pays  all  the  loans  predicated  upon  it  in  its 
progress  of  transmission  from  the  producer  to  the  consumer. 

"It  gathers  value  all  the  time  and  the  final  payer  pays  the 


84  THE  BUSINESS  OF  BANKING. 

first  cost  and  all  the  profits  added  to  it.  The  property  is  the 
real  debtor.  The  several  makers  of  paper,  though  debtors  in 
form,  are  only  insurers,  or  guarantors,  in  fact. 

"  From  this  analysis  of  the  origin  of  bank  discounts  it  will 
be  seen  that  the  common  maxim  among  bankers — that  the 
safest  loans  are  on  mercantile  paper — is  not  only  justified  by 
experience,  but  rests  upon  the  simplest  and  clearest  scientific 
principles." 

§  185.  Loans  on  Bills.  Property  in  the  process  of  trans- 
portation to  the  markets,  either  domestic  or  foreign,  with  the 
certainty  or  probability  of  sale;  goods  consigned  to  factors  to 
be  sold,  and  goods  already  sold  and  on  their  way  to  the 
buyer,  all  offer  one  of  the  most  legitimate  modes  of  borrow- 
ing money.  Bills  of  exchange  are  drawn  against  the  mer- 
chandise consigned.  When  the  bill  of  lading  accompanies 
the  bill  of  exchange  it  is  a  specific  pledge  of  the  property,  for 
the  bill  of  lading,  protected  by  the  insurance  policies,  is  con- 
sidered the  title  to  the  goods ;  these  are  called  documentary 
bills.  A  large  part  of  the  cotton,  tobacco,  grain  and  produce 
business  of  this  country  is  done  by  means  of  documentary 
bills.  Banks  buy  (discount)  these  at  one  rate  and  sell  them 
at  a  higher  rate. 

§  1 86.  Speculative  Loans.  These  are  such  as  are  made  on 
articles  of  commerce  withheld  from  the  market  for  a  better 
price,  etc.  Such  loans,  being  speculative  in  their  general 
nature,  should  be  entered  into  by  banks  with  great  caution. 
They  are  usually  made  for  too  long  a  time  to  depend  upon  to 
meet  the  bank's  immediate  liabilities.  Enough  reliable  short- 
time  paper,  certain  to  be  paid  when  due,  and  available  cash, 
should  be  kept  on  hand  to  meet  the  drafts  on  the  bank  by 
customers  and  the  other  demands  on  the  banks.  Converti- 
bility ought  to  be  the  first  requisite  in  the  collaterals  to  a 
loan.  The  test  of  a  bank's  solvency  is  in  the  speed  with 
which  it  can  liquidate  and  return  the  capital  to  the  stockhold- 
ers. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  85 

§  187.  Questionable  Loans.  The  loans  already  described 
are,  as  a  rule,  seldom  the  cause  of  loss  to  a  bank.  There  is  a 
class,  however,  which  often  causes  heavy  losses,  and  much 
trouble,  and  this  class  is  unfortunately  becoming  very  com- 
mon. Among  these  are  loans  on  personal  security  and  accom- 
modation paper  not  secured  by  collaterals,  and  which  do  not 
represent  any  business  transaction. 

Then  there  are  loans  made  for  the  improvement  or  pur- 
chase of  real  estate  ;  loans  to  furnish  capital  for  corporations, 
and  for  private  business.  These  are  objectional  loans  ;  they 
should  constitute  no  part  of  a  bank's  business.  A  bank's  proper 
relation  to  its  customer  is  to  convert  his  credit  sales  into  cash, 
and  thus  enable  him  to  continue  his  work  of  production ;  but 
it  is  outside  of  the  province  of  legitimate  banking  to  furnish 
money  to  establish  business  enterprises. 

§  1 88.  Security  for  Loans.  The  National  Bank  Act  says 
that  banks  may  loan  money  on  personal  security,  and,  no 
contingency  being  given,  it  would  be  inferred  that  no  other 
security  is  competent.  Judge  Dillon  has  declared  that  "The 
words  personal  security  in  the  National  Bank  Act  are  used  in 
contradistinction  to  real  security."  If  this  be  right,  and  it 
has  been  so  held  by  other  authorities,  banks  may  loan  on  any 
security  except  real  property.  They  then  have  the  right  to 
take  state  bonds,  municipal  bonds,  shares  of  other  national 
banks,  chattels,  warehouse  receipts,  etc.,  as  security  for  a  loan 
of  money. 

In  fact  there  are  comparatively  few  loans  made  with  just 
personal  security  when  such  security  is  fostered  and  obtained 
as  a  simple  personal  accommodation.  While  this  is  the 
practice  of  banks,  yet  it  is  difficult  to  see  any  reason  for  such 
a  view.  In  the  case  of  a  real  bill — one  given  for  actual  exist- 
ing values — the  note  or  bill  represents  a  past  transaction,  but 
the  security  is  nothing  more  than  the  personal  security  of  the 
indorsers.  In  an  accommodation  bill  the  maker  wishes  to 
secure  money  to  make  a  future  transaction  ;  but  he  must  get 


86  THE  BUSINESS  OF  BANKING. 

an  accommodation  indorsement  as  security.  The  security  of 
the  one  bill  is  exactly  the  same  as  of  the  other. 

What  difference  can  it  make  whether  a  note  or  bill  arose 
out  of  a  past  transaction  or  is  immediately  applied  to  a  pur- 
chase of  goods  to  meet  the  bill  ?  With  a  real  bill,  goods  have 
been  purchased  to  meet  the  bill ;  with  an  accommodation  bill, 
goods  are  to  be  purchased  to  meet  the  bill.  One  is  no  better 
than  the  other.  A  past  transaction  may  have  been  just  as 
wild  and  foolish  as  the  one  that  is  yet  to  be  done.  , 

§189,  Limitation  on  Loans.  In  relation  to  the  limit  on 
loans  specified  in  §  58,  Chief  Justice  Ruger  says:  "The 
object  of  this  provision  of  the  Currency  Act  was  to  guard 
national  banks  from  the  hazard  of  loaning  money  in  improvi- 
dent amounts  upon  speculative  and  accommodation  paper, 
but  it  contemplated  and  permitted,  to  an  unlimited  amount* 
the  discount  of  paper  used  and  required  in  facilitating  the 
transfer  of  property  and  money  in  the  transaction  of  the  legiti- 
mate business  of  the  country." 

Accordingly,  if  a  person  makes  his  notes  payable  to  the 
bank  and,  though  he  gets  the  required  security,  wishes  to 
have  them  discounted,  the  amount  of  such  discount  or  dis- 
counts must  not  exceed  ten  per  cent,  of  the  amount  of  the 
capital  stock  of  such  bank;  but  if  he  brings  notes  or  other 
negotiable  paper  drawn  in  good  faith  against  actual  existing 
values  and  representing  the  legitimate  business  of  the  country, 
he  is  not  limited  in  the  amount  of  such  discounts.  Loans  on 
accommodation  paper  are  limited;  those  on  real  paper  are  not. 

While  this  provision  is  intended  for  the  guidance  of  the 
association,  and  though  its  franchise  may  be  forfeited  for  vio- 
lation of  the  law,  the  loan  is  in  no  sense  illegal,  and  the 
association  may  recover  of  the  borrower  the  full  amount  of 
the  loan.11 

§  190.  National  Banks  Not  Government  Institutions. 
Before  giving  the  general  routine  of  the  directors'  meetings 

u  Gold  Mining  Co.  v.  Bank,  96  U.  S.,  640;  O'Hara  v.  Bank,  77  Penn.,  96. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  TOWERS.  87 

we  propose  to  notice  some  of  the  powers,  rights  and  restric- 
tions of  banks  in  general. 

National  banks  are  private  corporations,  organized  under  a 
general  law  of  Congress  by  individual  stockholders,  with  their 
own  capital,  for  private  gain,  and  managed  by  officers,  agents 
and  employes  of  their  own  selection.  They  constitute  no 
part  of  any  branch  of  the  government  of  the  United  States, 
and  whatever  public  benefit  they  contribute  to  the  country  in 
return  for  grants  and  privileges  conferred  upon  them  by 
statute  is  of  a  general  nature,  arising  from  their  business  rela- 
tions to  the  people  through  individual  citizens,  and  not  as 
direct  representatives  of  the  state  as  a  body  politic  in  exer- 
cising its  legal  and  constructive  functions/ 

§  191.  Effect  of  State  Laws.  While  national  banks  are 
purely  private  in  their  workings,  yet  they  aid  the  government 
very  materially  in  administering  an  important  public  service. 
They  were  designed  and  brought  into  existence  by  the  govern- 
ment for  this  purpose,  and  are  so  employed.  Each  separate 
state  has  power  to  make  and  enforce  its  own  laws,  but  the 
national  banks  being  the  result  of  national  legislation,  the  state 
can  exercise  no  control  over  them  except  as  Congress  may 
permit. 

The  state  has  no  power  to  control  the  operation  of  consti- 
tutional laws  enacted  by  the  General  Government. 

However,  a  national  bank  organized  in  one  state  has  no 
authority  to  do  business  in  another  state;  its  operations  must 
be  carried  on  at  the  place  named  in  its  organization  certifi- 
cate, and  nowhere  else.  See  §  178. 

§  192.  Regarding  Dividends.  It  is  the  verdict  of  the 
courts  that  when  a  bank  has  declared  a  dividend  it  cannot 
refuse  to  pay  it.  After  declaration,  the  dividend  becomes  a 
debt,  and  cannot  be  withdrawn  in  order  to  increase  the  sur- 
plus funds,  or  for  any  other  purpose. 

v$  193.  Directors  Not  Liable  for  Bad  Judgment.  If  the 
directors  declare  a  dividend  for  more  than  the  amount  of  the 
v  Branch  v.  The  United  States,  12  U.  S.  Ct.  of  Claims,  281. 


£8  THE  BUSINESS  OF  BANKING. 

"net  profits  after  deducting  the  bad  debts,"  because  they  are 
bad  debts,  but  not  so  considered  at  the  time  the  dividend  was 
declared,  they  are  not  held  liable  for  such  bad  judgment, 
without  bad  faith. 

§  194.  May  Omit  to  Declare  Dividend.  Neither  are 
directors  liable  for  unearned  profits,  and  when  there  is  no  net 
profit  they  may  omit  declaring  any  dividend  at  the  regular 
semi-annual  period.  They  are  personally  liable  for  damages 
at  such  times  if  they  do  declare  any  dividend  and  it  may 
subject  the  bank's  charter  to  forfeiture.  The  act  would  be 
one  of  mal-administration,  and  belongs  to  the  same  class  as 
the  purchase,  by  a  bank,  of  its  own  shares  when  not  neces- 
sary to  prevent  a  loss  on  a  debt  due  to  it. 

§  195.  Dealing  in  Bonds.  It  is  the  policy  of  the  govern- 
ment to  encourage  the  purchase  and  sale  of  its  bonds  and  to 
facilitate  transactions  in  them,  for  thereby  their  value  will  be 
enhanced  and  the  credit  of  the  government,  in  a  measure, 
promoted.  It  is  not  probable  that  Congress  intended  to  im- 
pose upon  the  national  banks  restrictions  which  would  oper- 
ate to  prohibit  dealing  in  the  securities  of  the  government  in 
a  manner  usual  among  bankers.w 

Judge  Earl  says*:  "While  the  statute  specifies  the  main 
things  national  banks  may  do,  it  does  not  undertake  to  specify 
all,  and  it  does  not  prohibit  all  not  specified.  There  is  a 
large  branch  of  the  banking  business  not  particularly  speci- 
fied— that  of  collecting  notes,  checks,  bills  of  exchange,  and 
other  evidences  of  debt,  for  other  persons.  It  has  never  been 
doubted  that  they  have  the  right  and  power  to  do  this  kind 
of  business,  as  forming  a  legitimate  part  of  banking  business." 

While  many  banks  deal  in  stocks  and  other  securities,  and 
this  is  often  conceded  to  be  within  the  powers  of  national 
banks,  yet  the  right  is  much  questioned. 


w  Leach  v.  Hale,  31  Iowa,  69. 

*  Yerkes  v.  Nat'l  Bank,  69  N.  Y.,  382. 


THE  BOARD  OF  DIRECTORS  AND  THEIR  POWERS.  89 

A  national  banking  association  is  not  authorized  to  act  as 
a  broker  or  agent  in  the  purchase  of  bonds  or  stocks. v 

A  national  banking  association  cannot  deal  in  stocks.  The 
prohibition  is  to  be  implied  from  the  failure  to  grant  the 
power/ 

§  196.  Relating  to  Real  Estate.  §  57,  relating  to  a  bank's 
power  to  hold  real  estate,  is  not  generally  understood.  The 
late  decisions  are  to  the  effect  that  real  estate  as  security  for 
loans  does  not  invalidate  the  obligation;  it  renders  the  con- 
tract voidable,  but  only  at  the  option  of  the  government. 
The  debtor  cannot  raise  the  objection  to  avoid  his  debt.  If 
the  bank  goes  beyond  its  authority,  the  government,  only, 
has  the  right  to  deal  with  the  institution  on  account  of  its 
unlawful  act  and  may  withdraw  its  franchise. 

Many  Western  farmers  complain  that  the  national  bank 
does  not  accommodate  them  with  loans  on  such  security  as 
they  have — real  estate.  Those  who  have  followed  the  history 
of  the  National  Bank  Act  know  that  such  loans  were  forbid- 
den for  fear  that  banks  would  become  great  holders  of  real 
estate.  Another  reason  was  that  the  experience  with  the  old 
state  banks  demonstrated  that  real  estate  was  a  poor  kind  of 
property  for  banks  to  possess.  Real  estate  is  not  easily  con- 
vertible, and  convertibility  should  be  one  of  the  requisites  of 
a  bank's  property. 

If  a  national  banking  association  acquires  real  estate 
which  it  is  not  authorized  to  take,  the  conveyance  to  it  is  not 
void,  but  only  voidable.  And  the  title  of  the  association  to 
such  real  estate  is  good  until  assailed  in  a  direct  proceeding 
by  the  government.11 

The  amount  of  real  estate  which  a  national  banking  asso- 
ciation may  purchase  to  secure  a  pre-existing  debt  is  not  lim- 

y  Bank  v.  Hoch,  89  Perm.,  324;  Weckler  v.  Bank,  42  Md.,  581. 
2  Bank  v.  Bank,  92  U.  S.,  122. 

»  Reynolds  v.  Bank,  112  U.  S.,  405;  Banke/.  Whitney,  103  U.  S.,  99;  Fortier 
v.  Bank,  112  U.  S.,  430, 


90  THE  BUSINESS  OF  BANKING. 

ited  to  the  exact  amount  of  the  debt,  but  as  much  may  be 
purchased  as  is  necessary  to  secure  the  debt  due,  so  long  as 
the  security  of  such  debt  is  the  real  object  of  the  purchase. b 

When  the  purpose  is  to  secure  a  debt  previously  con- 
tracted, a  national  banking  association  may  take  a  convey- 
ance of  real  estate  worth  more  than  the  debt,  and  pay  the 
difference  between  the  debt  and  the  value  of  the  property.0 

When  a  national  banking  association  sells  real  estate  it 
may  take  a  mortgage  thereon  to  secure  the  payment  of  the 
purchase  money.d 

§  1960.  Stock  of  Real  Estate  Corporations.  If  the  prop- 
erty of  a  corporation  should  consist  entirely  of  real  estate, 
its  stock  could  be  taken  as  collateral  security  by  a  national 
bank  for  a  loan.6 

§  196^.  Selling  Real  Estate.  There  is  nothing  to  restrain 
national  banks  from  selling  real  estate.  In  fact  the  statute 
provides  that  they  cannot  hold  real  estate,  taken  in  a  lawful 
manner,  for  a  longer  period  than  five  years.  Their  right  to 
sell  is  unquestioned. 

§  197.  Officers.  The  stipulation  in  the  fifth  clause  of  §  56, 
"to  appoint  officers  and  remove  them  at  pleasure  and  ap- 
point others  in  their  places,"  is  to  be  taken  that  no  cashier  or 
other  officer  can  be  hired  for  a  certain  specified  time.  If  a 
person  takes  the  position  of  teller,  cashier,  or  other  officer,  in 
a  national  bank,  he  is  supposed  to  assume  such  duties  under 
the  provisions  of  the  law,  and  he  can  retain  the  office  only 
during  the  pleasure  of  the  appointing  power. 

b  Upton  v.  Bank,  120  Mass.,  153. 

c  Libby  v.  Bank,  99  111.,  622. 

d  Bank  v.  Raymond,  29  La.,  Ann.,  355. 

e  Baldwin  v.  Canfield,  26  Minn.,  43. 


CHAPTER    V. 

THE  PRESIDENT. 


§208.  Cannot  certify  his  own  check. 

209.  Paying  interest. 

210.  Compromise. 

211.  Authority   is  less   than    that   of 

directors. 

212.  Imputation  of  knowledge. 

213.  Usage  and  ratification. 

214.  Bonds. 

215.  Power  to  secure  debt. 

216.  Duty  to  sign. 

217.  Salary. 


§198.  The  president. 

199.  General  authority. 

200.  Authority  by  usage. 

201.  Power    to    conduct    the   bank's 

litigation. 

202.  Real  estate  transfer. 

203.  Authority  to  purchase. 

204.  May  pay  bank's  debts. 

205.  Discounting. 

206.  Powers  of  the  president  limited 

to  those  of  the  directors. 

207.  Same. 

§  198.  The  president  is  the  chief  executive  officer  of  the 
bank,  though  he  may  not  be  the  business  manager — in  fact 
most  banks  are  managed  by  the  cashier.  If  there  be  a  vice- 
president  he  may  assume  the  president's  duties  during  the 
latter's  absence. 

The  president  is  appointed  or  elected  by  the  board  of  direc- 
tors and  may  be  removed  by  their  acts. 

§  199.  General  Authority.  Speaking  of  the  president's 
authority,  it  may  be  said  that  he  has  but  little  authority, 
unless  it  be  enlarged  by  charter,  or  by  the  acts  of  the  board. 

He  is,  in  reality,  nothing  more  than  the  president  of  the 
board  of  directors,  and  as  such  he  has  authority  to  perform 
the  duties  which  may  be  devolved  upon  him.  He  has  author- 
ity to  preside  at  the  board  meetings  and  to  conduct  the  legal 
proceedings  of  the  bank,  and  no  other  inherent  authority.  He 
may,  however,  be  given  special  authority  to  transact  any  of 


92  THE  BUSINESS  OF  BANKING. 

the  business  of  the  association,  and  such  authority  may  be 
given  him  by  express  action  of  the  board ;  or,  if  the  public  is 
led  to  believe  that  he  has  authority  to  make  agreements  and 
contracts,  he  will  be  considered  to  have  such  authority  by 
implication.* 

The  president  may  bring  an  action  at  law  and  employ 
counsel  for  the  purpose  of  protecting  the  rights  of  the  bank, 
but  he  is  not  its  business  manager,  nor  has  he  charge  of  its 
moneyed  operations. 

He  has  no  more  power  of  management,  or  disposal  of  the 
property  of  the  corporation,  than  any  other  member  of  the 
board  of  directors.  It  is  true  that  extensive  powers  may  be, 
and  quite  often  are,  given  to  the  president  by  the  charter  or 
by  the  action  of  the  directors,  and  where  so  conferred,  the 
right  to  proceed  thereunder  will  exist.b 

§  200.  Authority  by  Usage.  Notwithstanding  the  very 
limited  inherent  authority  of  the  president,  it  may  be  ex- 
tended by  usage,  as  with  other  officers.  If  it  is  the  custom  in 
a  state  for  a  president  to  draw  and  sign  drafts  or  checks  in  the 
absence  of  the  cashier,  without  special  authority  for  that  pur-- 
pose, his  bank  will  be  bound  by  his  action. 

Unless  expressly  prohibited  it  would  seem  that  the  presi- 
dent would  have  as  much  power  to  bind  the  bank,  at  any 
time,  as  the  cashier  or  other  officer.0 

§  201.  Power  to  Conduct  Litigation.  It  is  everywhere 
conceded  that  the  bank's  litigations  should  be  conducted  by 
the  president.  He  may  appear,  answer  and  defend  in  suits 
against  the  bank.  He  may  retain  and  employ  counsel  on 
behalf  of  the  bank.d  As  may  be  supposed,  the  board  of 
directors  may  reserve  the  right  to  conduct  the  bank's  litiga- 
tions, in  which  case  the  president  has  no  such  authority. 

a  First  Nat.  Bank  v.  Kimberlands,  10  W.  Va.,  555. 
b First  Nat.  Bank  v.  Lucas,  21  Neb.,  280. 
cNeiffer  v.  Bank  of  Knoxville,  i  Head,  162. 
*  First  Nat.  Bank  v.  Kimberlands,  16  W.  Va.,  579. 


THE  PRESIDENT.  93 

§  202.  Real  Estate  Transfer.  In  a  transfer  of  land  and 
in  executing  all  instruments  where  the  bank's  seal  is  neces- 
sary to  be  used,  neither  the  president  nor  the  cashier  can  act 
without  the  authority  of  the  board  of  directors.  The  mort- 
gaging, conveyance  or  disposition  of  the  bank's  property  is  a 
part  of  the  management  of  the  association  which  is  confided 
expressly  to  the  directors,  not  to  the  president  or  cashier.  In 
no  case  has  it  been  held  that  these  officers  have  the  power  to 
assign  a  mortgage  without  the  assent  and  authority  of  the 
board  of  directors.0  However,  if  the  president  should  execute 
a  deed  for  the  bank  and  affix  its  seal,  this  will  be  regarded  as 
the  seal  of  the  bank,  and  the  burden  of  proving  that  it  was 
executed  without  authority  is  on  the  contracting  party/ 

§  203.  Authority  to  Purchase.  A  president,  when  duly 
authorized  by  express  or  implied  authority  from  the  board, 
may  transfer  the  real  or  personal  property  belonging  to  the 
bank.  He  may  even  purchase  real  estate  to  satisfy  debts  due 
;he  bank.  He  may  make  such  purchase  in  satisfaction  of  sus- 
pended paper,  or  for  such  purpose  may  take  anything  of  value 
as  may  to  him  seem  wise  to  accept* 

§  204.  May  Pay  Bank's  Debts.  In  paying  the  bank's 
debts,  either  the  cashier  or  the  president  may  instruct  a  clerk 
i;o  pay  them.h  And  in  the  absence  of  the  cashier  the  president 
can  draw  checks  without  special  authority  for  that  purpose/ 
even  though  a  temporary  cashier  has  been  appointed.j  In 
Alabama  the  president  has  no  such  authority,  unless  conferred 
by  the  charter  or  by-laws  of  the  bank.k 

§  205.  Discounting.  Discounting  notes  is  a  function  of 
the  board  of  directors,1  but  authority  to  discount  can  be  con- 

eHoyt  v .  Thompson,  5  N.  Y.,  334. 

f Flint  v.  Clinton  Co.,  12  N.  H.,  430;  Union  Bank  v.  Call,  5  Fla.,  409;  Angell 
&  Ames  on  Corporations,  §§  223,  224. 

*  Libby  v.  Union  National  Bank,  99  111.,  622. 

bCity  Bank  v.  Bateman,  7  Harris  &  John's  Rep.,  104. 

iNeiffer  v.  Bank  of  Knoxville,  i  Head,  162.      J  Same. 

k Gibsons.  Goldthwaite,  7  Ala.,  281. 

1  Farmers  and  M.  Bank  v.  Butchers  and  D.  Bank,  16  N.  Y.,  125. 


94  THE  BUSINESS  OF  BANKING. 

ferred  on  the  president,  unless  restrained  by  statute  or  char- 
ter.™ 

§  206.  Powers  Limited  to  those  of  Directors,  The  direc- 
tors cannot  empower  the  president  to  do  anything  which  they 
themselves  cannot  do.  They  cannot  release  a  debt  without 
consideration,  and  they  cannot  empower  the  president  to  re- 
lease it.n  And  he  could  not  bind  himself  in  such  a  transaction. 

Every  person  is  supposed  to  know  the  general  scope  of  the 
authority  of  the  person  with  whom  he  deals  ;  if  a  man  deals 
with  an  officer  of  a  corporation,  and  no  misrepresentations 
are  made  by  that  officer,  and  that  officer  simply  proposes  to 
bind  the  corporation,  and  as  a  matter  of  fact  the  corporation 
is  not  bound,  and  is  not  bound  simply  because  the  contract  is 
ultra  vires  of  that  corporation,  the  officer  making  the  agree- 
ment is  not  bound.0 

§  207.  A  president  cannot  promise  to  pay  a  debt  which  the 
bank  is  not  liable  to  pay.  His  admission  does  not  create  a 
contract  and  the  bank  will  not  be  bound. p  Nor  can  the  presi- 
dent or  cashier,  nor  both,  release  the  obligation  of  a  maker, 
indorser,  or  other  guarantor  of  a  debt  due  the  bank.  It  is  not 
their  duty  to  make  such  contracts,  nor  have  they  power  to  bind 
the.  bank  except  in  the  discharge  of  their  ordinary  duties. 
Any  conditions  regarding  the  loaning  of  money  must  be  fixed 
by  the  board  of  directors.*1  Nor  can  the  president  release  his 
own  liability  when  he  is  the  maker  or  indorser  of  a  note  held 
by  the  bank.  He  cannot  act  in  such  an  antagonistic  capacity/ 

§  208.  Cannot  Certify  his  Own  Checks.  Should  a  presi- 
dent certify  his  own  check  the  act  would  be  such  a  palpable 
excess  of  authority  that  no  holder  could  compel  the  bank  to 

m  Bank  v.  Bennett,  23  Mich.,  523.     See  §  182. 
n  Hodges  v.  F.  N.  Bank,  22  Gratt.,  51. 
0  Holt  v.  Winfield  Bank,  25  Fed.  Rep.,  812. 

P  Henry  &  Co.  v.  Northern  Bank,  63  Ala.,  527;  Branch  Bank  v.  Hunt,  63 
Ala.,  876, 

r'  Bank  of  the  U.  S.  v.  Dunn.,  6  Pet.,  51: 

r  Gallery  v.  Nat'l  Exch.  Bank,  41  Mich.,  169. 


THE  PRESIDENT.  95 

pay  the  amount."  The  holder  would  have  distinct  notice  by 
the  face  of  it  that  the  acceptance  was  improperly  and  irregu- 
larly made.  It  would  be  patent  on  the  face  of  the  paper  that 
the  acceptance  was  a  fraud.  It  would  be  a  violation  of  official 
character  for  personal  benefit,  and  he  could  not  possibly  there- 
by bind  his  bank.1 

$  209.  Paying  Interest.  Unless  special  authority  is  con- 
ferred by  the  board,  a  president  has  no  right  to  agree  to  pay 
interest  on  deposits.  It  is  no  part  of  the  ordinary  business  of 
banking  to  receive  deposits  of  money  on  interest,  and  this  can 
be  done  only  when  the  directors  direct  such  a  course." 

§210.  Compromise.  If  there  be  any  matter  which  more 
than  any  other  falls  within  the  scope  of  the  duty  of  directors 
it  is  that  of  compromising  debt,  because  it  not  only  affects 
the  prosperity  of  the  institution,  but  may  involve  its  very  ex- 
istence. Necessity  does  not  require  the  president  to  exercise 
his  judgment  alone  as  to  it  ;  indeed  the  proper  management 
of  a  bank  dictates  that  he  should  not  do  so,  and  it  is  not, 
therefore,  a  matter  incident  to  the  performance  of  his  duty/ 

§211.  Authority  Less  than  Directors'.  The  qualified 
authority  of  directors  to  make  contracts  with  their  bank  does 
not  extend  to  the  president,  or  other  officers.  When  these 
are  made  between  one  or  more  of  their  number  and  the  bank 
all  or  several  of  the  directors  are  supposed  to  have  knowledge 
of  the  proposed  terms  to  take  part  in  the  deliberations  pre- 
ceding its  adoption.  But  such  an  exercise  of  authority  by 
several  directors  is  very  different  from  the  exercise  of  it  by  a 
president,  or  other  officer,  without  the  knowledge  of  the  board. 
It  is  true  that  the  president  does  many  things  in  which  he  is 
interested  as  well  as  his  bank,  which  stand  on  the  firm  ground 
of  ratification,  and  which  are  done  without  any  authority 

s  Rhodes  v.  Webb,  24  Minn.,  294. 

1  Claflin  v.  Farmers  and  Citizens  Bank,  25  N.  Y..  298. 

u  Fulton  Bank  v.  N.  Y.  &  Sharon  Canal  Co.,  4  Paige,  127. 

v  Wheat  v.  Bank,  5  S.  W.  Rep.,  305;  see  also  §  163. 


96  THE  BUSINESS  OF  BANKING 

whatever,  or  are  repetition  of  acts;  perhaps,  which  have  been 
done  many  times  and  always  with  the  bank's  approvals 

§  2 1 2.  Imputation  of  Knowledge.  Whenever  information 
is  given  to  a  president  for  the  purpose  of  transmission  through 
him  to  his  bank,  the  law  will  regard  the  bank  as  having  the 
knowledge,  whether  the  president  has  communicated  it  or  not.x 

Notice  to  the  president  that  stock  standing  on  the  books  of 
the  bank  in  the  name  of  a  person  is  held  by  him  in  trust  for  an- 
other, is  notice  to  the  bank.  There  is  no  other  officer  to  whom  * 
it  could  be  made  with  more  propriety.  It  would  be  equally 
available  if  made  to  the  cashier  or  to  a  director.  In  the  same 
way  the  president' s  knowledge  of  the  record  of  a  mortgage 
would  be  imputed  to  his  bank.  And  especially  the  notice  of 
a  suit,  delivered  to  him,  or  any  other  of  the  bank's  officers, 
would  be  regarded  as  given  to  the  bank/  Even  when  not  act- 
ing officially,  or  when  away  from  his  bank  and  not  attending 
to  its  business,  he  ought  to  have  the  interests  of  his  bank  in 
mind,  and  when  he  acquires  information  which  would  bind 
his  bank  if  conveyed  to  him  in  an  official  manner,  it  ought  not 
to  be  less  effective  if  acquired  in  another  way.z  It  makes  no 
difference  where  he  receives  information,  it  is  his  duty  to  trans- 
mit it  to  his  bank.  It  is  his  duty  to  do  so  however  or  when- 
ever acquired,  because  his  knowledge  binds  the  bank.a 

§  2 1 3.  Usage  and  Ratification.  These  have  an  important 
part  to  play  in  the  acts  of  a  bank  president.  Possessing  but 
little  inherent  authority,  his  authority  to  do  the  business  of 
the  bank  requires  a  very  great  enlargement.  While  this  is 
done  by  general  and  special  action  of  the  board,  his  authority 
has  also  been  enlarged  by  usage,  while  numerous  acts  subse- 
quently receive  the  assent  of  his  co-directors  in  various  ways.b 

w  Bolles  on  Bank  Officers,  §  350. 

x  Washington  Bank  v.  Lewis,  22  Pick.,  24;  National  Bank  i<.  Norton,  i  Hill, 
575- 

>'  Porter  v.  Bank  of  Rutland,  19  Vt.,  410;  Savings  Bank  v.  Holt,  58  Vt.,  166; 
Eastman  v.  Coos  Bank,  i  N.  H.,  23. 

z  Fulton  v.  N.  Y.  &  Sharon  Canal  Co.,  4  Paige,  127. 

a  Village  of  Pt.  Jarvis  v.  Bank,  96  N.  Y.,  550. 

b  Norawetz  on  Priv.  Corp.,  §  537. 


THE  PRESIDENT.  97 

No  formal  action  is  positively  necessary  to  ratify  the  acts  of 
the  president.  If  the  directors  are  in  the  habit  of  giving  their 
assent  separately  when  not  assembled  as  a  board,  such  action 
will  bind  the  bank.0  Far  more  often,  however,  ratification  is 
inferred  from  an  informal  acquiescence  in  his  acts,  or  approval 
of  them.'1 

§214.  Bonds.  The  president,  beingone  of  the  chief  stock- 
holders and  president  of  the  board  of  directors,  and  therefore 
a  rnan  of  prominence  in  the  community,  is  not  required  to  give 
bonds  to  secure  the  bank  should  he  fail  to  faithfully  perform 
his  duties.  Of  course  there  are  cases  where  bank  presidents 
have  gone  wrong,  but  these  are,  fortunately,  very  few  when 
compared  to  those  who  are  true  to  their  trust. 

$215.  Power  to  Secure  Debt.  The  earlier  view  of  the 
limited  authority  of  a  president  is  changing.  One  reason  for 
this  change  of  view  is  that  he  is  a  far  more  active  officer  than 
he  was  formerly,  especially  in  the  smaller  banks  and  outside 
the  large  cities.  Once,  the  cashier  was  the  chief  manager  of 
these  institutions  very  generally,  but  now  the  president  is 
often  chosen  with  the  expectation  that  he  will  thus  serve.  It 
has  therefore  been  decided  that  to  secure  a  debt  he  can  take 
property,  cattle  for  example,  even  though  they  may  be  encum- 
bered by  other  liens.  "At  any  rate,  after  having  had  them  and 
received  the  property,  it  cannot,  while  enjoying  the  fruits  of 
the  transaction,  be  absolved  from  the  performance  of  its  obli- 
gations to  others  assumed  by  its  officers  as  a  means  of  getting 
possession  of  the  property,  on  the  plea  that  its  acts  were  ultra 
vires!'  And  in  such  a  transaction  the  letters  written  by  the 
president  concerning  it  may  be  introduced  against  the  bank 
in  a  legal  controversy  relating  thereto.6 

§216.  Duty  to  Sign.  The  president,  with  the  cashier, 
must  sign  all  documents  conveying  real  estate,  all  certificates 

c  Bank  z/.  R.  &  W.  R.  R.  Co.,  30  Vt.,  159. 

A  Hoyt  v.  Thompson,  19  N.  Y.,  207. 

e  Bank  u.  Emery,  78  Texas,  498;  Bolles1  National  Bank  Act,  £  55^. 


98  THE  BUSINESS  OF  BANKING. 

of  stock  to  the  shareholders,  and  all  circulating  notes.  He, 
or  the  cashier  must  sign  and  verify  all  reports  which  are  to 
be  made  by  the  association  to  the  Comptroller  of  the  Curren- 
cy. He  also  verifies  the  installments  of  stock,  statements, 
returns  for  taxation,  and  all  papers  made  to  the  Comptroller. 

§217.  Salary.  This  is  a  matter  which  varies  a  great 
deal.  In  small  banks,  where  the  business  is  entirely  managed 
by  the  cashier,  and  the  president  has  but  little  more  to  do 
than  the  other  directors,  he  sometimes  charges  nothing  for  his 
services.  In  large  banks,  where  all  his  time  must  be  given  to 
the  work  and  many  duties  devolve  upon  him,  he  commands 
a  large  salary.  Some  bank  presidents  receive  as  high  as  fif- 
teen thousand  dollars  a  year. 

In  large  city  banks  it  is  supposed  to  be  desirable  that  the 
president  shall  possess  an  independent  income  and  should  not 
be  engaged  in  any  other  business,  as  this  might  divert  his 
attention  from  the  bank,  and  in  the  case  of  personal  embar- 
rassment he  might  be  tempted  to  seek  relief  from  the  means 
in  his  official  hands.  Notwithstanding  this  general  opinion 
many  banks  are  presided  over  by  merchants. 

The  failure  of  many  banks  is  due  directly  to  the  fact  that 
the  president  and  directors  have  outside  interests,  often  with 
large  capital  invested,  which  render  their  views  narrow  and 
partial.  Their  business  requires  greater  attention  at  critical 
times  and  the  bank  must  suffer  the  loss  of  their  counsel  ;  less 
attention  is  given  to  the  paper  discounted,  or  the  board  neg- 
lects entirely  to  attend  to  the  discounts;  greater  responsibili- 
ties are  thrown  on  the  cashier  and  the  other  officers,  and  the 
downward  road  is  struck. 


CHAPTER  VI. 

THE  CASHIER. 


5218. 
219. 

ziga. 

220. 
221. 
222. 
223. 
224. 
225. 
226. 
227. 
228. 
229. 

230. 
231. 
232. 

233- 
234- 
235- 

236. 

237- 
238. 
239 
240. 

240^. 

24I. 

242. 

243- 
244. 


Appointment. 

Official  bond. 

Continuance  of  bond. 

An  illustration. 

Approval  of  sureties. 

Revocation. 

Manager. 

His  assistants. 

Importance  of  a  good  manager. 

Choosing  the  manager. 

Engagement  in  other  business. 

His  salary. 

He  should  be  respected  by  the 
board. 

Watching  the  markets. 

Dealer's  credit  book, 

The  object  of  banking. 

Regulating  a  bank's  capacity. 

Risk  on  loans. 

How  the  indorser  affects  the 
risk. 

The  practice  of  frugality  and 
the  risk  on  new  ventures. 

Kiting  and  how  it  is  practiced. 

Losses  cannot  be  avoided. 

Governing  the  profits. 

The  benefit  of  loans  to  deposit- 
ors. 

An  illustration. 

Dishonest  gains. 

A  cashier's  duty  to  have  knowl- 
edge of  borrowers. 

Regulating  future  resources. 

Prospective  loans. 
99 


§245- 
246. 
247. 
248. 

249. 

250. 
251. 
252. 

253- 
254- 


255- 
256. 

257- 
258. 

259- 
260. 
261. 
262. 
263. 
264. 
265. 
266. 
267. 


Robberies. 

Overdrafts. 

Enforcing  payment. 

Should  not  deviate  from  settled 
business  principles. 

The    criterion    of  a  cashier's 
merit. 

His  signature. 

The  correspondence. 

Daily  routine  of  a  bank's  exec- 
utive. 

% 

New  customers. 
Sources  of  authority. 

1.  Statute  and  charter. 

2.  Usage. 

3.  Necessity. 

4.  Inherent  authority. 

5.  Directorial. 

6.  Ratification. 
Certificate  of  deposit. 
Authority  to  borrow. 
Certification. 

Indorsing  the  bank's  paper. 
Indorsement  for  collection. 
Authority  to  collect  debts. 
Compromise. 
Authority  to  discount. 
Re-discounts. ' 
Transferring  the  stock. 
Application  of  payments. 
Mistakes  corrected. 
Limitations  of  a  cashier's  pow- 


100 


THE  BUSINESS  OF  BANKING, 


5268.     The  bank's   liability    for   the 
cashier's  acts. 

269.  Responsibility    for    deposits — 

general  and  special. 

270.  Responsibility  for  other  acts. 

271.  Liability  for  misconduct. 

272.  Cashier's  liability  for  the  con- 

duct of  his  subordinates. 


§273.  Various  duties  of  a  cashier. 

274.  Bank  inspection. 

275.  Taxation  of  bank  shares. 

276.  Higher  valuation. 

277.  The  shareholders,  not  the  bank, 

are  assessable. 

278.  Where  shares  must  be  assessed. 

279.  Other  regulations. 


§  2 1 8.  Appointment.  The  directors  have  power  to  ap- 
point a  cashier,  who  may  hold  office  for  any  length  of  time. 
The  cashier  is  usually  a  shareholder  and  often  a  director  of 
his  bank.  It  is  presumed  that  if  he  holds  stock  in  his  bank 
he  will  take  more  interest  in  its  affairs  than  if  he  had  no 
pecuniary  interest. 

§  219.  Official  Bond.  The  habit  of  taking  bonds  from  the 
executive  officers  of  banking  institutions  is  almost  universal. 
These  are  to  indemnify  the  association  against  loss  by  default 
of  the  officer  in  the  transaction  of  the  business  of  his  office, 
or  by  reason  of  the  temptations  offered  him.  The  amount  of 
such  bond  is  determined  by  the  directors.  The  cashier  usu- 
ally gives  a  bond  for  from  ten  thousand  to  thirty  thousand 
dollars. 

§  219*?.  Continuance  of  Bond.  If  a  cashier  gives  a  bond 
conditioned  on  the  faithful  discharge  of  his  duties,  no  time 
being  given,  though  he  may  be  re-elected  at  the  end  of  the 
year,  his  bond  continues  until  he  is  qualified  by  a  new  bond. 
The  statute  provides  that  the  cashier  shall  retain  his  office 
until  removed,  or  until  another  is  appointed  in  his  stead.  He 
is  an  officer  of  the  bank  and  not  of  the  directory.  He  is  an 
officer  created  by  charter,  not  by  by-law  or  ordinance  of  the 
directors.  He  is  the  officer  and  agent,  within  the  scope  of  his 
powers,  of  the  corporation.  The  charter  and  the  institution 
hold  him  out  to  the  public  as  such.  His  duties  do  not  spring 
out  of  his  election  by  the  board  of  directors,  but  out  of  the 
nature  and  functions  of  his  office  as  defined  by  the  general 
law.  He  is  a  statute  officer  of  the  corporation,  lawfully  em- 


THE  CASHIER.  101 

powered  to  carry  the  contracts  of  the  bank  into  execution,* 
and  his  election  for  a  definite  term  by  the  board  will  not  affect 
either  his  term  of  office  or  his  bond. 

§  220.  A  cashier  was  appointed  and  gave  bond;  the  next 
year  he  was  re-appointed,  but  gave  no  new  bond.  He  con- 
tinued in  office,  without  further  bond,  for  five  years,  when  he 
was  guilty  of  defaults.  His  two  appointments  had  been  "for 
the  year  ensuing."  The  statutory  provision  is  that  a  cashier 
"shall  hold  office  until  another  is  appointed."  If  he  is  to  con- 
tinue in  office  he  is  also  to  perform  his  official  duties,  and  the 
bond  will  remain  in  force.  Though  the  election  was  for  the 
year  ensuing,  the  office  is  not,  by  law,  annual,  and  he  could 
hold  it  until  another  was  appointed,  by  virtue  of  the  general 
law.  Because  the  directors  hold  office  by  virtue  of  an  annual 
election  does  not  in  any  way  affect  the  cashier's  term  of  office. 
The  cashier's  office  not  being  annual,  his  election  to  an  office 
which  he  already  held,  and  would  continue  to  hold,  without 
an  election,  was  only  a  manifestation  of  the  directors'  inten- 
tion that  he  should  continue  to  hold.  The  directors  must 
have  held  this  opinion,  as  evidenced  by  their  not  requiring  a 
new  bond.  In  this  case  the  words  are  general ;  there  is  no 
recital;  the  office  itself  is  not  annual.  Chief  Justice  Shaw, 
delivering  the  opinion  of  the  Court,  held  that  the  sureties  on 
the  bond  had  never  been  released,  and  must  pay.b 

§  22 1.  Approval  of  Sureties.  The  board  of  directors  must 
approve  the  bonds  of  the  officers.  Any  one,  including  a  direc- 
tor, may  become  surety  on  the  cashier's  bond,  providing  the 
board  of  directors  approve  such  surety. 

It  is  not  necessary  that  national  banking  associations  shall 
signify  their  approval  of  the  official  bonds  of  their  officers  by 
memoranda  entered  upon  the  journals  or  minutes  of  the  direc- 
tors. The  acceptance  is  to  be  presumed  from  the  retention 

a  Casey  v.  Giles,  10  Ga.,  9;  Bank  v.  Bank,  i  Parson's  Select  Cases,  240;  Bissell 
v.  Bank,  65  Pa.,  415. 
b  Amherst  Bank  v.  Luther  Root,  2  Metcalf  Rep.,  522. 


ic2  THE  BUSINESS  CF  BANKING. 

of  the  bond,  and  from  the  fact  that  the  officer  is  permitted  to 
enter  upon  or  continue  in  the  discharge  of  his  duties.0 

§  222.  Revocation.  A  surety  may,  at  pleasure,  revoke  his 
guaranty,  without  cause,  upon  proper  notice,  but  the  right 
must  be  exercised  reasonably.4 

§  223.  Manager.  As  has  already  been  stated,  the  cashier 
is  usually  the  manager  of  the  affairs  of  the  bank.  In  city 
banks  the  president  is  sometimes  the  manager,  but  in  the 
great  majority  of  cases  the  cashier  is  the  chief  executive.  He 
cannot,  however,  transact  all  the  business  of  the  bank,  for 
the  law  authorizes  the  directors  to  make  discounts  and  exe- 
cute other  contracts.  A  cashier  is  allowed  to  present  himself 
to  the  public  as  habitually  accustomed  to  make  payment  for 
its  bills  and  notes  payable  to  other  persons;  to  make  payment 
for  bills  and  notes  discounted  by  the  directors;  to  receive 
payment  for  all  debts  due  the  bank;  to  receive  money  on  de- 
posit and  to  pay  the  same  to  the  order  of  the  depositors;  to 
have  custody  of  the  bank's  books,  bills,  notes,  and  other  evi- 
dences of  debt  due  it,  and  indeed  all  its  movable  property;  to 
make  entries  in  its  books  and  keep  its  accounts  and  a  record 
of  its  proceedings. 

§  224.  In  many  banks  these  duties  are  performed  in  part 
by  tellers,  clerks,  or  assistants,  but  generally  under  his  super- 
intendence, and  he  might  at  any  time  assume  the  performance 
of  them  and  perform  them,  if  able  to  do  so,  without  assist- 
ance. His  true  position  appears  to  be  that  of  a  general  agent 
for  the  performance  of  his  official  and  accustomed  duties. 
While  acting  within  the  scope  of  this  authority  he  would  bind 
the  bank,  although  he  might  violate  his  private  instructions.* 

Unless  the  cashier' s  operations  are  restricted  by  the  direc- 
tors, he  is,  for  many  purposes,  looked  upon  by  law,  and  is 
treated  as  if  he  was  the  whole  body,  which  he  has  power  to 

cGrover  v.  Bank,  10  Bush.,  23. 

dLa  Rose  v.  Bank,  102  Ind.,  332. 

e  Franklin  Bank  v.  Steward,  37  Me.,  519, 


THE  CASHIER.  103 

bind,  even  by  his  tortious  acts/  ''The  cashier  is  the  execu- 
tive of  the  financial  department  of  the  bank,  and  whatever  is 
to  be  done,  either  to  receive  or  pass  away  the  funds  of  the 
bank  for  banking  purposes,  is  done  by  him  or  under  his  direc- 
tion; he  therefore  directs  and  represents  the  bank  in  the  recep- 
tion and  emission  of  money  for  banking  objects. "g 

§  225.  Importance  of  a  Good  Manager.  "The  best  bank- 
ing system  may  be  defeated  by  imperfect  management;  and, 
on  the  threshold,  the  evils  of  an  imperfect  banking  system 
may  be  greatly  mitigated,  il  not  overcome,  by  prudence,  cau- 
tion and  resolution." 

§  226.  Choosing  the  Manager.  The  conduct  of  a  manager 
ought  to  be  characterized  by  great  circumspection.  He  ought, 
unquestionably,  to  be  chosen  solely  on  account  of  his  qualifi- 
cations as  a  banker,  and  not  because  he  is  a  rich  man,  a  man 
of  fashion,  or  a  man  with  an  extensive  circle  of  friends.  His 
experience  in  banking  operations  should  be  the  first  considera- 
tion, and  other  qualifications  may  be  considered  afterwards. 
In  this  way  a  stimulus  is  given  to  persons  of  talent,  who  may 
be  looking  forward  to  the  reward  of  a  life  of  toil  and  drudgery; 
and  thus  merit  is  patronized  and  protected.  A  wise  choice 
should  be  made  at  the  beginning,  and  no  one  promoted  over 
the  head  of  another,  though  a  uniform  system  of  regular  pro- 
motion should  be  practiced. 

§  227.  Engagement  in  other  Business.  A  banker  should 
be  diligent  in  attention  to  the  affairs  of  his  bank.  Notwith- 
standing the  idea  that  people  once  had  that  business  men  were 
mere  machines  that  worked  like  automatic  figures,  no  successful 
business  can  be  carried  on  without  great  care  and  attention. 
A  bank  manager,  being  allowed  a  competent  salary,  cannot  be 
justified  in  occupying  his  time  and  energy  with  any  other  em- 
ployment while  absent  from  his  duties  in  the  bank.  Of  course 

f  Badgers.  Bank,  26  Me..  428;  Bank  v.  Norton,  T  Hill,  561;  Caldwellv.  Bank, 
64  Barb.,  340;  Bank  v.  Haskell,  51  N.  H.,  116;  U.  S.  v.  City  Bank,  21  How., 
356;  Merchants  Banks/.  State  Bank,  10  Wall.,  604. 

*  Asher  v.  Button,  31  Kan.,  389. 


104  THE  BUSINESS  CF  BANKING. 

he  will  be  expected  to  add  to  his  mental  acquirements  and 
endeavor  to  broaden  his  education  in  every  way  possible  and 
not  be  narrow  in  his  views.  The  bank  is  entitled  to  his  chief 
attention. 

If  he  undertakes  to  manage  or  control  some  other  trade  or 
profession,  or  take  an  active  part  in  politics  or  public  affairs, 
he  is  sacrificing  more  or  less  of  the  time  which  he  owes  to  his 
bank.  His  time  belongs  to  the  bank,  and  if  he  does  not  give 
it  he  falls  short  of  being  a  good  manager. 

Next  to  being  secret  and  cautious,  a  manager  ought  to  be 
decided  in  all  his  measures,  free  from  party  influence  and  firm 
in  his  purpose.  A  habit  of  promptitude  and  decision  is  very 
essential  to  the  proper  regulation  of  the  business  of  a  bank, 
and  may  be  acquired  by  forethought  and  circumspection. 
Nothing  makes  a  manager  look  more  silly  and  contemptible 
than  a  hesitating,  dubious  and  capricious  manner.  His  an- 
swers ought  to  be  prompt  and  satisfactory;  he  should  be  suffi- 
ciently acquainted  with  the  business  to  at  once  say  whether 
an  act  can  be  done  or  not,  and  he  should  appear  free  from 
restraint,  and  not  disposed  to  alter  an  opinion  once  formu- 
lated.11 

§  228.  Salary.  Next  to  having  a  dishonest  manager,  the 
greatest  evil  is  to  have  one  that  is  badly  paid.  If  he  is  known 
to  be  poor,  his  advice  will  have  less  weight  in  the  board  room; 
the  directors  will  treat  him  with  less  respect;  the  needy  class, 
when  refused  discount,  will  insult  him  by  threatening  to  com- 
plain to  the  directors;  and  his  inferior  officers  will  be  less 
prompt  in  their  obedience.  But  worse  than  all  will  be  the! 
effect  produced  upon  his  own  mind.  He  cannot  be  so  efficient 
a  manager  when  badly  paid,  as  he  would  be  if  he  received  a 
liberal  remuneration.  The  amount  of  his  salary  is  the  only 
tangible  means  by  which  a  manager  can  judge  how  far  his 
services  and  character  are  appreciated.  It  is  not  the  money 
alone,  but  the  feeling  of  which  the  money  is  an  indication, 

h  Philosophy  of  Joint  Stock  Banking,  by  Geo.  M.  Bell. 


CASHIER.  105 

that  produces  an  effect  on  the  mind.  It  is  a  law  of  our  nature 
that  the  kindness,  liberality  and  generosity  of  others  will  pro- 
duce corresponding  feelings  in  ourselves.  And  it  is  another 
law  of  our  nature,  that  when  the  mind  is  under  the  influence 
of  such  feelings  it  is  capable  of  intellectual  efforts  of  a  higher 
order.1 

$  229.  Manager  Should  be  Respected  by  the  Board.  The 
manager,  from  his  experience  and  the  importance  of  the  office 
he  fills,  is  entitled  to  the  kind  consideration  and  entire  confi- 
dence of  the  board  of  directors.  He  is  selected  by  them  to 
occupy  an  arduous  and  highly  responsible  position,  and  ought 
to  be  rewarded,  not  merely  by  a  satisfactory  pecuniary  remu- 
neration, but  with  the  respect  and  friendship  of  the  directors 
and  be  considered  on  an  equal  footing  with  them.  Without 
this  confidence  and  respect  he  cannot  take  his  place  at  the 
board  meetings  and  feel  free  from  restraint  and  discuss  mat- 
ters pertaining  to  the  bank  with  composure;  nor  can  he  ap- 
pear before  the  customers  with  that  satisfaction  which  proper 
banking  demands.  In  that  degree  in  which  the  manager  is 
respected  and  well-spoken  of  by  the  directors,  will  respect  and 
confidence  be  extended  to  him,  and  consequently  to  the  estab- 
lishment, by  the  public,  and  a  good  opinion  entertained  of 
their  judgment  and  discernment  in  his  selection. 

§  230.  Watching  the  Markets.  A  bank  manager  should 
not  only  understand  men  and  be  able  to  judge  of  character,  a 
knowledge  so  essential  to  a  successful  business  career,  but  he 
must  keep  a  keen  watch  on  the  movements  of  trade;  on  the 
strength  and  weakness  of  those  to  whom  money  is  loaned,  or 
who  may  become  borrowers.  A  bank' s  prosperity  depends  on 
the  wisdom  with  which  its  resources  are  loaned.  The  trade 
newspapers  should  be  carefully  read,  and  information  relating 
to  borrowers  be  sought  in  every  way.  Careful  vigilance  and 
a  good  memory  in  this  connection  will  serve  to  reduce  the 
losses  on  bad  loans  to  the  minimum.  When  a  number  of  fail- 

1  Practical  Treatise  on  Banking,  by  James  W.  Gilbart,  p.  125. 


io6  THE  BUSINESS  OF  BANKING. 

ures  occur  in  a  particular  trade,  they  should  be  carefully 
looked  into,  and  if  possible  the  reasons  which  led  to  them 
searched  out.  Great  care  in  accumulating  information  of  this 
kind  will  produce  such  results  as  to  more  than  pay  for  the 
trouble  entailed.  Many  banks  have  scrap  books  in  which  all 
information  regarding  trade  is  carefully  kept. 

§231.  Every  bank  should  know  as  much  as  possible  regard- 
ing the  financial  condition  of  its  dealers,  and  to  do  this  many 
banks  keep  a  "Customer's  Credit  Book,"  in  which  everything 
of  importance  regarding  the  customer's  business  is  written. 
The  mercantile  reports  and  the  papers  are  carefully  scanned 
and  all  kinds  of  business  investigated.  Sometimes  banks  send 
persons  to  make  a  special  examination  into  the  condition  of 
the  affairs  of  a  customer.  Of  course  these  special  inquiries 
must  be  made  with  great  secrecy,  for  should  a  customer  dis- 
cover that  his  business  was  being  investigated  by  the  bank,  he 
would,  in  many  cases,  cease  dealing  with  the  bank  and  might 
thereafter  use  his  influence  to  injure  it.  This,  however,  should 
not  prevent  a  bank's  executive  from  a  proper  regard  for  his 
duties  to  the  bank.  The  successful  managers  are  those  who 
are  most  diligent  in  conducting  these  investigations  and  in 
watching  the  complicated  movements  of  trade. 

A  summary  of  important  facts,  important  interviews,  con- 
versations, statements,  reports,  etc.,  should  be  written,  or 
pasted  in  a  large  scrap  book,  as  already  suggested.  This  book 
should  have  a  voweled  index  for  easy  reference.  All  this 
will  take  time,  and  in  many  banks  the  manager  cannot  attend 
to  it,  and  a  credit  clerk  is  employed,  whose  almost  exclusive 
duty  is  to  seek  the  information  required  in  every  quarter  and 
record  the  same  in  the  "  Customer's  Credit  Book." 

§  232.  Object  of  Banking.  A  banker  ought  to  have  and 
keep  in  mind  the  true  object  of  banking,  for  ''correct  senti- 
ment begets  correct  conduct."  The  primary  object  of  bank- 
ing consists  in  making  pecuniary  gains  for  the  stockholders 
by  legal  transactions.  Good  banking  is,  of  course,  a  great 


THE  CASHIER.  107 

benefit  to  society,  but  this  consideration  should  not  induce  a 
banker  to  disregard  the  interests  of  the  bank.  It  may  ben- 
efit society  for  one  man  to  build  houses,  for  another  to  build 
factories,  and  for  many  others  to  get  permanent  loans,  but 
the  good  of  society  must  be  considered  as  secondary  to  the 
good  of  the  association. 

"The  honor  and  pecuniary  prosperity  of  his  bank  should 
constitute  the  paramount  motive  of  every  banking  operation. 
A  violation  of  this  principle  produced,  in  1837,  a  suspension 
of  specie  payment,  which  was  visited  on  bank  stockholders 
by  a  legislative  prohibition  of  dividends,  and  visited  on  banks 
and  bankers  by  a  general  obloquy.  The  banks  suspended, 
that  the  debtors  of  the  bank  might  not  suspend  ;  or  worse, 
the  banks  suspended  that  the  debtors  might  be  spared  the 
pecuniary  loss  that  would  have  resulted  from  paying  their 
bank  debts.  Conduct  so  suicidal  was  probably  fostered  by 
!;he  pernicious  union,  in  one  person,  of  bank  director  and  bank 
debtor,  a  union  from  which  our  banks  are  never  wholly  ex- 
empt ;  nor  are  they  always  exempt  from  a  union  still  more 
pernicious,  of  bank  president  and  cashier  in  one  person.  With 
this  inherent  defect  in  the  organization  of  our  banks,  we  can 
the  more  readily  understand  why,  in  1837,  the  banks  assumed 
dishonor  to  shield  their  debtors.  *  *  * 

"  Every  suspension  of  specie  payment  might  have  been  pre- 
vented had  the  bankers  performed  their  duty  to  their  respect- 
ive banks,  by  prudence  in  the  quality  of  their  loans  and  vigor 
in  the  enforcement  of  payments. 

§  233.  Regulation  of  a  Bank's  Capacity.  "  The  subordi- 
nation of  the  honor  and  interests  of  a  bank  to  the  avarice  or 
necessities  of  its  managers,  or  dealers  of  any  description,  is 
productive,  not  of  suspensions  only,  but  of  every  disaster 
which  usually  befalls  banks  ;  and  unless  such  a  subordination 
can  be  prevented  by  the  officer  who  acts  specially  as  a  banker, 
,no  man  who  respects  himself  should  continue  in  the  position, 
when  he  discovers  that  such  a  subordination  is  in  progress. 


io8  THE  BUSINESS  OF  BANKING. 

The  owner  of  a  steam  engine  regulates  his  business  by  the 
capacity  of  his  engine,  but  should  he  regulate  it  by  the  neces- 
sities of  his  customers,  he  would  probably  burst  his  boiler.  A 
shipowner  regulates  his  freight  by  the  tonnage  of  his  ship  ;  a 
contrary  course  would  sink  it.  So  every  bank  possesses  a. 
definite  capacity  for  expansion  by  which  bank  dealers  can 
regulate  their  business  ;  but  when  a  bank  regulates  its  expan- 
sion by  the  wants  of  its  dealers,  or  the  persuasion  of  its 
friends,  it  will  probably  suspend,  or  be  otherwise  unprofitable 
to  its  stockholders  ."•' 

§  234.  Risk  on  Loans.  When  a  bank  lends  $10,000  for 
two  months  there  is  a  probability  of  a  loss  of  $10,000  without 
a  possibility  of  a  greater  gain  than  about  $170.  No  charge 
is  made  for  the  hazard,  only  what  the  use  is  worth.  For  this 
reason  banks  do  not  generally  lend  money  without  the  secu- 
rity of  at  least  two  persons  who  are  deemed  good  for  the 
entire  debt.  In  the  cities  it  often  happens  that  the  indorse- 
ment of  only  one  person  is  required,  but  the  good  banker  will 
err  on  the  side  of  too  much  rather  than  too  little  security. 

§  23  5.  Regarding  the  Indorser.  In  considering  an  indorser, 
a  banker  may  properly  reason  that,  aside  from  the  indorsees 
ability  to  pay,  the  borrower  will  want  to  protect  a  friend  who 
has  thus  favored  him,  and  will  probably  do  all  in  his  power  to 
pay  his  own  loan.  Again,  an  indorser  will  usually  foresee 
when  financial  embarrassment  threatens  the  borrower  and 
will  at  once  appeal  for  protection.  This  will  warn  the  bank 
to  make  efforts  for  collection.  These  benefits  are  not  derived 
from  indorsers  who  are  connected  in  business  with  the  bor- 
rower ;  hence  the  good  banker  will  not  take  indorsers  who  are 
financially  connected  with  the  borrower. 

The  morals  of  men  have  a  great  deal  to  do  with  the  prob- 
ability of  their  paying.  An  immoral  borrower  will  care  less 
for  the  protection  of  his  indorser,  and  an  immoral  indorser 
will  struggle  against  paying  an  unprotected  indorsement.  An 

J  Bolles  on  Practical  Banking,  p.  27. 


THE  CASHIER.  ,IOg 

indorsees  property  ought  to  be  large  in  proportion  to  his 
indorsement,  to  avoid  trouble  in  the  event  of  the  borrower's 
failure  to  pay. 

^  236.  "  Men  who  are  prone  to  extravagance  in  their  do- 
mestic or  personal  expenditures  rarely  possess  the  amount  of 
property  they  are  reputed  to  possess.  Men  expend  to  be 
thought  rich  more  frequently  than  they  expend  by  reason  of 
jbeing  rich.  The  rich  are  usually  more  inclined  to  parsimony 
than  extravagance.  Anyway,  persons  who  practice  parsi- 
mony are  in  the  way  of  becoming  rich,  whatever  may  be 
their  present  poverty ;  while  persons  who  are  profuse  in  ex- 
penditures are  in  the  way  of  becoming  poor,  though  they  may 
possess  a  present  opulence."k 

New  enterprises,  untried  ventures,  or  lines  of  business 
which  often  result  in  failure,  etc.,  are  hazards  which  a  good 
banker  will  seldom  assume. 

Money  invested  in  merchandise  or  goods,  in  the  course  of 
the  borrower's  business;  notes  received  on  the  sale  of  such 
£roods ;  drafts  drawn  on  goods  consigned  to  be  sold  for  the 
siccount  of  the  borrower — all  these  are  securities  which  are 
less  hazardous,  and  representing  actual  existing  values,  they 
furnish  the  means  of  their  own  payment  and  are  the  class  of 
Joans  which  bankers  seek. 

§  237.  Kiting.  A  country  merchant  draws  a  time  draft 
on  a  merchant  in  Chicago,  and  obtains  thereon  a  discount  at 
some  country  bank.  When  the  draft  becomes  payable  the 
Chicago  merchant  will  obtain  the  means  for  paying  it  by 
drawing  a  time  draft  on  the  country  bank  and  getting  a  dis- 
count thereon  in  New  York.  This  is  called  "kiting."  Kiting 
is  practiced  in  notes  and  checks  as  well  as  in  drafts,  and 
between  persons  living  in  the  same  as  well  as  in  different 
places. 

A  country  dealer  will  sometimes  have  some  one,  without 
capital,  in  Chicago,  on  whom  to  draw,  or  to  act  as  acceptor. 

k  Bolles  on  Practical  Banking,  p.  29. 


no  THE  BUSINESS  OF  BANKING. 

There  is  no  limit  to  the  amount  which  the  false  acceptor  will 
accept,  so  the  dealer  may  carry  his  operations  to  the  extent 
of  his  ability  to  find  lenders.  A  banker  should  suspect  the 
solvency  of  any  one  who  resorts  to  any  of  these  unbusiness- 
like practices  to  obtain  money — in  fact  a  good  banker  will 
not  only  refuse  to  handle  such  paper,  but  also  refuse  to  deal 
further  with  the  person  who  resorts  to  such  operations. 

§  238.  Cannot  Avoid  Loss.  Bankers  are  human,  and 
being  liable  to  err  the  same  as  other  beings,  they  cannot  be 
expected  to  avoid  all  loss.  "  Eternal  vigilance  is  the  prime 
virtue  of  a  banker,"  and  if  this  is  exercised  it  will  reduce 
lossesto  the  minimum.  To  gain  is  the  business  of  banking, 
and,  as  the  principal  source  of  legitimate  gain  is  loaning 
money,  the  bank  must  lend  to  the  extent  of  its  ability — erring 
on  the  side  of  too  many  loans  rather  than  too  few.  If  timidity 
or  indolence  limits  his  loans  in  advance  of  necessity,  he  ma]^ 
injure  the  community  which  he  is  supposed  to  benefit,  by 
pecuniary  assistance,  and  injure  the  stockholders  by  unneces- 
sarily abridging  the  profits.  Of  course  he  must  have  an  eye 
to  the  future  and  provide  for  coming  debts,  but  meanwhile; 
lend  all  that  the  condition  of  his  funds  and  prospective  re- 
sources will  warrant. 

§  239.  Governing  the  Profits.  If  he  can  make  good  profit?; 
without  much  expansion  he  may  be  more  restricted  in  his 
loans  than  otherwise.  To  be  strong  in  funds  and  rich  in  prof- 
its is  next  to  impossible  ;  hence,  the  more  gains  which  a  banker 
wishes  to  make  the  poorer  in  funds  he  must  consent  to  be- 
come. Extremes,  however,  are  dangerous ;  it  is  the  happy 
medium — the  golden  mean  —  which  produces  satisfactory 
results  ;  and  if  a  banker  can  keep  funds  enough  for  safety,  he 
had  better  forego  excess  of  funds  and  receive  an  equivalent  in 
profits.  Excess  of  loans  is  better  than  excess  of  funds  ;  and 
if  these  are  of  undoubted  solvency,  prompt,  and  short,  it  will 
work  a  relief  to  the  bank.  But  scarcity  of  loans  cannot,  by 
any  means,  cure  the  scant  profits  of  the  shareholders.  Banks 


THE  CASHIER.  in 

are  rarely  injured,  therefore,  by  an  excess  of  discounts.  When 
banks  fail,  they  do  so  from  the  quality  of  their  loans,  not  from 
the  quantity. 

A  banker  should  keep  his  funds  active.  To  refuse  to  loan 
money  because  the  rates  are  too  low  is  to  give  evidence  of 
his  own  incapacity  for  business.  If  high  rates  cannot  be 
obtained,  it  is  still  a  gain  to  lend  at  low  rates,  while  it  would 
be  a  loss  not  to  lend  at  all. 

§  240.  However,  most  bankers  have  more  business  than 
they  can  assume  and  they  are  thereby  enabled  to  select  the 
most  profitable  and  reject  the  less  profitable  ones. 

In  speaking  of  the  profits  of  banking,  we  mean  gains  that 
proceed  from  some  other  source  than  the  interest  allowed  by 
law  for  the  use  of  money.  These  are  derived  most  largely 
from  circulation  and  deposits;  hence  loans  are  advantageous 
to  a  bank  in  proportion  as  they  increase  the  circulation  and 
deposits.  Loans  to  persons  who  keep  their  money  deposited 
with  another  bank  yield  no  profit  to  the  lender  except  the 
interest  on  the  loan;  hence  they  are  not  so  profitable  as  loans 
to  borrowers  who  will  take  bank  notes  of  the  lending  bank 
and  circulate  them  over  the  country  in  the  purchase  of  agri- 
cultural or  other  products. 

So,  on  a  loan  to  one  of  its  depositing  customers,  the  bank 
receives  interest  on  its  promises  to  pay  the  borrowed  money 
when  the  borrower  shall  from  time  to  time  draw  for  the  same. 
The  bank  does  not  part  with  its  money  at  all — it  simply 
lends  its  promise  to  pay  whenever  the  borrower  may  demand 
it.  And  when  a  deposit  is  thus  drawn  from  a  bank  a  draft  is 
not  necessarily  paid  in  money,  but  in  bank  notes,  which  may 
thereby  obtain  circulation.  This  advantage  is  a  usual  attend- 
ant of  the  deposits  of  some  customers,  and  makes  their 
accounts  doubly  beneficial  to  a  bank.1 

§  240^.  Suppose  that  dealers  deposit  $50,000  to  their  ac- 
counts; the  money  now  belongs  to  the  banker  to  do  with  it  as 

1  Bolles  on  Practical  Banking,  32. 


H2  THE  BUSINESS  OF  BANKING. 

he  may  elect.  He  now  has  $50,000  in  cash  and  owes  on  de- 
positors' accounts  $50,000.  Now  dealers  would  not  deposit 
money  if  they  intended  to  draw  it  out  immediately,  though 
some  may  want  to  draw  out  a  part  of  their  funds.  But  as 
one  draws  out  another  will  probably  deposit  an  equal  sum, 
and  thus  a  banker's  balance  of  cash  will  not  vary  more  than 
one-thirtieth  part  from  day  to  day.  This  being  the  case,  if  a 
banker  retains  one-tenth  in  cash  to  meet  the  demands  of  his 
customers  this  will  be  sufficient  for  all  ordinary  times. 

Then  if  the  banker  retains  $5,000  for  his  customers'  de- 
mands, he  has  $45,000  to  trade  and  make  a  profit  by.  Now 
it  must  not  be  supposed  that  the  banker  employs  this  amount 
in  purchasing  business  paper  and  that  he  makes  a  profit  only 
on  the  $45,000.  A  banker  does  not  buy  paper  with  money; 
this  is  the  method  employed  by  bill  brokers.  The  banker 
sees  that  $5,000  in  money  is  ample  to  support  $50.000  of  lia- 
bilities in  credits,  and  it  is  therefore  evident  that  $45,000 
will  support  liabilities  to  several  times  that  sum  in  credits. 

Now  the  banker  buys  commercial  paper,  but  he  does  so 
just  as  he  bought  his  $50,000  of  deposit  cash — he  buys  it  with 
credits,  deducting  at  the  same  time  the  discount,  or  profit,, 
agreed  upon. 

If  the  banker  buys  $200,000  of  business  paper  at  three 
months  and  the  interest  or  discount  agreed  upon  is  eight  per 
cent.,  then  the  profit  on  these  bills  is  $4,133.33.  In  buying 
bills  for  $200,000  he  creates  credits,  debts,  or  as  we  term 
them,  deposits,  to  the  amount  of  $195,866.67. 

Now  the  banker  has  added  $195,866.67  to  his  liabilities 
and  $200,000  to  his  resources  in  the  way  of  bills  of  exchange, 
etc.  The  balance,  $4,133.33,  is  his  profit,  which  is  eight  per 
cent,  on  $200,000,  not  on  his  $45,000  of  cash.  This  is  the 
correct  method  of  banking.  A  bank  is  a  manufactory  of  credits. 

§241.  Dishonest  Gains.  "  Honesty  is  the  best  policy," 
but  an  honest  man  will  be  honest  because  it  is  right.  The 
stockholders  cannot  afford  to  retain  a  banker  who  is  willing 


THE  CASHIER.  113 

to  make  dishonest  gains.  A  man  who  will  act  dishonestly 
to  make  gains  for  the  shareholders  will  also  collude  against 
them  to  make  dishonest  gains  for  himself. 

§  242.  Duty  to  Know  Borrowers.  In  cities  the  borrow- 
ers are  generally  known  to  some  of  the  directors  or  the  cash- 
ier, but  in  country  banks  the  borrowers,  or  their  indorsers, 
are  residents  of  distant  places  and  unknown,  personally,  in 
the  locality  of  the  bank.  A  country  banker,  who  should  insist 
on  personal  acquaintance  with  the  makers  and  indorsers  of 
all  his  discounts,  would  not  find  employment  for  all  his  capi- 
tal. In  vain  will  such  a  banker  insist  that  he  ought  not  to 
make  loans  to  persons  of  whom  he  has  no  knowledge.  He 
should  acquire  it.  It  is  indispensable  to  his  bank.  He  is 
bound  to  know  a  sufficient  number  of  persons  to  enable  his  bank 
1:o  employ  its  capital  advantageously.  Every  note,  therefore,- 
lhat  he  rejects  for  want  of  knowledge  is  ostensibly  a  slight 
jeproach  on  him,  while  every  note  that  he  rejects  or  accepts 
by  means  of  his  knowledge  of  the  parties  is  a  tribute  to  his 
industry  and  vigilance. 

Thus  we  find  that  country  banks  are  often  liable  to  loss  by 
forgeries.  Many  of  the  parties  who  deal  with  country  banks 
write  poorly,  and  their  signatures  bear  but  little  evidence  of 
genuineness,  even  when  the  banker  is  partially  acquainted 
i.vith  them  ;  for  the  same  person  will  write  differently  at  differ- 
ent times,  and  is  continually  changing  ink  and  pens.  How- 
ever, if  the  danger  is  greater,  the  greater  the  caution  which 
the  banker  must  exercise.  He  must  exercise  all  the  vigilance 
possible,  or  he  will  not  stand  excused  from  subsequent  losses. 

<$  243.  Regulating  Future  Resources.  In  order  for  a 
banker  to  lend  to  the  extent  of  his  ability  he  must  be  well 
acquainted  with  the  abilities  of  his  bank.  To  do  this  will 
require  a  constant  study  of  the  bank's  statement  of  resources 
and  liabilities,  which  is  corrected  daily.  He  must,  of  course, 
always  be  ready  to  meet  the  demands  of  his  customer's  drafts 
and  must  reserve  enough  cash  for  that  purpose.  But  a  banker 


ii4  THE  BUSINESS  OF  BANKING. 

must  not  be  satisfied  that  to-day's  funds  will  meet  the  wants 
of  the  day,  he  must  feel  assured  that  he  will  be  in  the 
same  position  on  all  future  days.  This  may  be  accomplished 
by  having  before  him,  at  all  times,  a  detailed  list  of  his  pros- 
pective resources,  showing  what  notes  and  acceptances  will 
be  payable  to  the  bank  daily,  for  some  weeks  or  months 
ahead.  With  this  list  he  will  be  able  to  judge  whether  his 
prospective  resources  will  need  the  aid  of  his  existing  unem- 
ployed funds,  or  whether  he  may  loan. them.  Such  a  list  may 
be  furnished  by  a  well  kept  "tickler."  This  is  a  book  in  which 
all  the  debts  due  the  bank  are  classified  and  entered  under 
the  date  of  their  respective  maturities. 

Should  a  banker  discover  that  his  resources  will  be  small 
during  the  month  of,  say,  December,  he  can,  with  this  list, 
overcome  the  difficulty  by  discounting,  in  the  preceding 
months,  paper  that  will  mature  in  December.  Thus  he  is  en- 
abled to  always  provide  the  bank  with  all  the  necessary 
funds. 

§  244.  Prospective  Loans.  A  banker  must,  at  all  times, 
be  master  of  his  resources.  To  enable  him  to  do  this  he 
should  never  promise  a  prospective  loan,  or  make  any  loans 
with  promise  of  their  renewal.  The  more  he  keeps  uncom- 
mitted the  better  he  will  be  able  to  accommodate  himself  to  the 
ever  varying  circumstances.  Banking  is  subject  to  enough 
uncertainties  without  unnecessarily  aggravating  them  by  pros- 
pective agreements. 

§  245.  Robberies.  A  banker  must  employ  tellers  and 
clerks,  to  whom  he  can  intrust  his  vaults  and  their  contents. 
Robberies  are  often  committed  by  such  persons,  and  some- 
times remain  long  concealed.  While  a  banker  cannot  be  re- 
sponsible for  all  such  acts,  yet  he  is  responsible  for  the  exer- 
cise of  practical  vigilance,  and  this  will  do  much  in  the  way 
of  security  against  such  mishaps.  No  one  steals  property  to 
hoard,  and  its  use,  therefore,  can  seldom  be  wholly  concealed, 
and  this  is  the  clew  which  the  vigilant  eye  can  trace  to  the 


THE  CASHIER.  115 

plunderer.  "Nearly  every  plunderer  is  a  prodigal,  and  may 
thereby  be  detected;  nearly  every  plunderer  is  needy,  and 
should  therefore  be  suspected."  The  banker  should  ever  be 
on  the  alert,  or  he  is  answerable  for  the  safety  of  the  bank. 
The  sentinel  whose  post  happens  to  be  surprised  by  the  enemy 
may  escape  punishment  as  a  criminal,  but  he  can  rarely  gain 
commendation  for  vigilance,  or  escape  censure  for  careless- 
ness. 

§  246.  Overdrafts.  To  permit  overdrafts  is  to  make  loans 
without  indorsers  and  without  interest.  It  is,  moreover,  to 
empower  a  debtor  to  control  your  resources.  No  mode  of 
lending  can  be  more  inconsistent  with  safe  banking,  and  it 
should  never  be  permitted.  Still,  every  man  who  keeps  a 
bank  account  can  draw  for  a  larger  amount  than  is  to  his 
credit  and  the  banker  cannot  supervise  the  payment  of  his 
checks.  A  vigilant  banker  will,  however,  provide  vigilant  tell- 
ers and  clerks.  A  vigilant  teller  will  soon  learn  whom  he 
must  watch;  but,  after  all,  an  overdraft  may  be  perpetrated, 
and,  whether  by  accident  or  design,  the  bookkeeper  should 
immediately  report  the  occurrence  to  the  banker,  who  will 
act  thereon  as  his  judgment  shall  deem  proper."' 

§  247.  Enforcing  Payment.  No  business  can  escape  doubt- 
ful debts,  and  banks  do  not  furnish  an  exception.  Usually 
the  most  favorable  time  to  force  payment  is  when  the  debt 
becomes  payable.  Then  the  debtor  has  expected  to  pay,  and 
if  he  is  then  in  default  no  reliance  can  be  placed  on  his  prom- 
ise of  future  payment.  Then,  again,  he  is  generally  less 
offended  by  legal  enforcement  of  payment  when  it  is  promptly 
enforced,  and  he  knows  the  creditor  is  disappointed,  than  he 
is  after  the  default  has  been  silently  acquiesced  in  by  long 
forbearance.  Additional  security,  when  necessary,  can  be 
obtained  with  less  difficulty  at  the  time  of  the  default  than 
after  the  debtor  has  become  reconciled  to  his  dishonorable 
position.  His  credit  is  better  now,  and  therefore  new  indorsers 

m  Bolles  on  Practical  Banking,  p.  38 


n6  THE  BUSINESS  OF  BANKING. 

easier  to  obtain  than  subsequently.      A  good  banker  will  be 
quick  to  act  on  these  principles. 

§  248.  Should  Not  Deviate.  There  are  always  persons 
who  will  ask  a  deviation  from  the  usual  rules  of  banking,  and 
who  propose  such  relaxation  of  rules  because  of  some  alleged 
pressing  emergency.  If  such  relaxation  is  fraught  with  any 
insecurity,  any  violation  of  law  or  official  duty,  a  banker 
should  never  submit,  even  though  it  promises  unusual  gains 
to  the  bank.  A  banker  should  know  his  own  business  and  be 
exact  in  its  execution.  While  he  adheres  to  firm  and  settled 
rules  and  principles,  Providence  is  a  guarantee  for  his  success; 
but  when  he  deviates,  it  is  a  guarantee  for  his  failure. 

§  249.  The  Criterion  of  His  Merits.  A  banker  should 
possess  enough  legal  knowledge  to  make  him  suspect  what 
may  be  defects  in  proffered  securities,  so  as  to  submit  his 
doubts  to  the  directors.  He  must  in  all  things  show  himself 
to  be  eminently  practical.  Any  one  can  tell  an  undoubted 
insufficient  security  from  an  obviously  abundant  security,  but 
neither  of  these  constitutes  any  large  portion  of  the  loans 
that  are  offered  to  a  banker.  Security  practically  sufficient 
for  the  occasion  is  all  he  can  obtain  for  the  majority  of  the 
loans  he  must  make.  If  he  must  err  in  his  judgment  of 
securities  he  had  better  reject  fifty  good  loans  than  make  one 
bad  debt;  but  he  must  endeavor  not  to  err  on  the  extreme  of 
caution  or  the  extreme  of  temerity;  and  his  tact  in  these  par- 
ticulars will,  more  than  any  other,  constitute  the  criterion  of 
his  merits  as  a  banker. 

He  ought  to  be  fully  acquainted  with  the  banking  laws  un- 
der which  he  is  working.  He  must  watch  for  every  item  of 
legislation  bearing  on  his  business.  He  must  read  the  reports 
of  cases  at  law,  and  the  decisions  reached;  for  in  these  will 
be  found  the  most  important  information  bearing  upon  his 
responsibility  and  duty  as  cashier. 

A  banker  ought  to  understand  thoroughly  every  book  in 
the  bank.  In  fact  he  should  understand  every  detail  of  the 


THE  CASHIER.  n7 

business.     He  should  be  a  student  of  his  own  business  at  all 
times. 

He  is  expected  to  decide  all  questions  of  action  in  the  many 
cases  which  are  brought  to  him  by  the  heads  of  the  various 
departments.  He  is  supposed  to  know  the  rights  and  duties 
involved  in  every  case,  and  to  decide  safely  and  promptly  on 
all  matters.  He  also  spends  much  of  his  time  consulting 
with  dealers  and  the  general  public. 

$250.  His  Signature.  The  cashier,  in  the  matter  of  his 
signature,  is  the  chief  representative  of  the  bank.  It  is  diffi- 
cult for  a  bank  to  go  behind  it  or  do  anything  without  it. 
Whenever  he  signs,  in  his  official  capacity  and  within  the 
limits  of  his  authority,  the  bank  is  irrevocably  held,  and  his 
authority,  as  banks  have  discovered  in  cases  where  his  signa- 
ture has  been  contested,  is  very  wide. 

The  cashier  signs,  in  connection  with  the  president,  or  vice- 
president,  all  the  circulating  notes  issued.  This  may  be  done, 
however,  by  the  printer  stamping  on  the  bills  the  fac-simile 
of  his  signature,  of  which  he  is  the  custodian,  and  which,  in 
its  place,  holds  the  bank  fully  responsible.  Many  national 
banks  use  the  printed  signature.  The  signatures  of  the  gov- 
ernment officials,  on  all  paper  money,  are  printed. 

He  signs  the  checks  of  the  bank,  and  its  indorsements ;  and 
all  reports  and  returns  made  to  the  government ;  drafts,  certifi- 
cates of  deposit,  certificates  of  stock,  and,  in  fact,  where  the 
bank  is  to  sign,  it  is  the  cashier's  place  to  sign,  for  he  is  its 
chief  executive. 

§251.  The  Correspondence.  One  of  the  cashier's  first 
duties,  on  reaching  the  bank  in  the  morning,  is  to  attend  to 
all  the  correspondence  of  the  bank.  In  small  banks  he  does 
this  without  assistance,  but  where  the  correspondence  is 
heavy  his  assistant  cashier  and  corresponding  clerk  attend  to 
all  the  more  mechanical  part  of  the  correspondence,  but  still 
every  letter  and  reply,  except  those  of  simple  routine,  must 
be  submitted  to  the  cashier.  Those  which  the  cashier  must 


Ii8  THE  BUSINESS  OF  BANKING. 

answer,  called  "special  letters,"  such  as  applications  for  dis- 
counts, proposals  for  new  customers,  complaints,  asking  opin- 
ions about  persons  or  bonds,  etc.,  are  laid  on  his  table  in  the 
early  part  of  the  morning. 

Some  banks  have  a  rule  that  the  cashier  shall  sign  all  let- 
ters which  leave  the  bank,  but  this  would  be  next  to  impossi- 
ble in  a  large  bank,  for  the  correspondence  ranges  from  one 
hundred  to  two  thousand  letters  a  day.  Most  of  them  are 
mere  forms,  statements  of  inclosures,  and  may  be  easily  an- 
swered, printed  forms  being  used  for  both  statement  and 
inclosure.  All  answers  to  special  letters  are  copied  in  a  letter 
book. 

§  252.  Daily  Routine.  The  following  description  of  the 
usual  daily  routine  of  one  of  the  best  conducted  banks  in  New 
York  city  may  not  be  out  of  place  here  :  After  examining  a 
dozen  or  so  papers  to  which  the  bank  subscribes,  the  cashier 
looks  around  to  see  that  all  the  clerks  are  on  hand  and  pre- 
paring the  exchanges  for  the  Clearing-house.  If  a  vacant 
place  is  seen,  then  it  is  presumed  that  a  clerk  is  absent,  and 
somebody  must  be  found  to  supply  his  place.  In  the  morn- 
ing almost  all  the  clerks,  except  the  bookkeepers  and  heads  of 
departments,  are  engaged  in  preparing  the  Clearing-house 
exchanges.  In  that  bank  the  letters  are  so  numerous  that  a 
large  force  is  necessary  in  order  to  get  the  exchanges  ready  in 
time,  and  any  vacancy  must  be  speedily  rilled.  Sometimes 
the  cashier  is  obliged  to  assist  in  such  work.  If  a  clerk  is  not 
on  hand  by  ten  minutes  past  nine  he  is  regarded  late. 

The  special  letters  are  brought  to  the  cashier,  and  those 
requiring  immediate  attention  are  answered  at  once;  others  at 
a  more  convenient  time.  Then  letters  containing  remittances 
are  brought  in  from  the  bookkeeper's  desk.  Those  requiring 
immediate  attention  are  laid  one  side,  and  the  instructions 
t'hey  contain  are  entered  in  a  special  letter  book  for  the  use  of 
the  corresponding  clerk.  For  instance,  if  an  advice  concerning 
a  payment  is  requested,  it  is  the  duty  of  the  corresponding 


THE  CASHIER.  119 

clerk  to  give  the  necessary  advice.  The  last  duty  which  the 
corresponding  clerk  performs  in  the  day  is  to  examine  his 
special  letter  book  for  the  purpose  of  assuring  himself  that 
all  letters  requiring  special  attention  on  his  part  have  been 
answered. 

When  the  directors  meet,  the  cashier  usually  performs  the 
services  of  secretary,  and  one  of  his  most  important  functions 
is  to  give  advice  to  the  directors.  He  examines  loans  secured 
by  collateral,  and  when  any  collateral  is  found  to  be  such  that 
the  bank  does  not  longer  wish  to  hold  it,  he  calls  in  the  loan. 
He  carefully  examines  the  balance  books  and  directs  all  the 
details  of  the  bank,  keeping  himself  informed  concerning  the 
business  done,  Such  are  the  leading  features  of  his  daily 
business,  interspersed  with  frequent  calls  and  interruptions." 

$  253.  New  "Customers.  A  bank  does  not  differ  much 
from  other  lines  of  business  in  as  much  as  it  is  always  trying 
to  increase  its  operations.  The  cashier  is  always  seeking  to 
increase  his  deposits,  for  on  these  he  makes  the  greater  part 
of  his  profits.  To  do  this  he  is  ever  on  the  alert  for  new  cus- 
tomers. But  however  much  he  may  desire  these,  he  will  not 
open  an  account  with  persons  who  are  not  properly  introduced 
and  identified.  He  must  know  the  character  of  his  dealers. 
Persons  introduced  by  a  clerk  of  the  bank  will  be  looked  upon 
with  disfavor,  and  many  banks  will  refuse  to  open  an  account 
without  additional  introduction.  Otherwise  such  a  person 
might  be  a  confederate  in  some  plan  with  the  clerk  to  defraud 
the  institution.  The  introduction  of  a  merchant  by  another 
merchant  is  usually  satisfactory.  If  not  engaged  in  any  busi- 
ness the  applicant  may  produce  facts  relative  to  his  condition 
which  would  satisfy  the  cashier  without  further  inquiry. 

When  the  cashier  decides  to  open  an  account  with  an  appli- 
cant, he  has  him  sign  his  name  in  a  "signature  book."  And 
all  that  an  applicant  says  of  himself  and  all  that  can  be  found 

n  Bolles  on  Practical  Banking,  p.  74. 


120  THE  BUSINESS  OF  BANKING. 

out  about  him  then  or  afterward  is  recorded  in  the  " dealer's 
credit  book,"  already  described. 

§  254.  Sources  of  Authority.  There  are  six  sources  from 
which  a  cashier  may  receive  authority : 

First. — From  statute  or  charter.  A  cashier  has  certain 
powers  which  he  possesses  by  virtue  of  his  office.  Such  au- 
thority cannot  be  abridged  by  action  of  the  directors  or  stock- 
holders. 

Second. — From  usage  and  the  general  course  of  banking 
business.  When  he  acts  within  the  scope  of  the  general  usage, 
practice  and  course  of  business  conducted  by  the  bank,  he 
will  generally  bind  the  bank  in  favor  of  a  third  person  possess- 
ing no  other  knowledge.0 

The  ordinary  usage  and  practice  of  a  bank  must  be  sup- 
posed to  result  from  regulations  by  the  board  of  directors,  to 
whom  the  charter  and  by-laws  submit  the  management  of  the 
bank  and  the  direction  of  its  officers.  The  cashier  and  other 
officers  are  held  out  to  the  world  as  having  authority  to  act, 
and  their  acts  within  the  scope  of  the  business  of  the  bank 
would  bind  the  bank,  as  already  stated.  Any  other  rule  would 
make  it  hazardous  for  any  one  to  deal  with  a  bank  officer.p 

Third. — From  necessity  a  cashier  performs  many  acts 
which  are  not  defined  by  formal  action  of  the  directors.  This 
does  not  make  his  power  to  bind  the  bank  any  less. 

Fourth. — His  authority  may  be  inherent.  A  cashier  is  gen- 
erally intrusted  with  the  notes,  securities,  and  other  funds  of 
the  bank,  and  is  held  out  to  the  world  as  its  general  agent  in 
negotiations,  management  and  disposal  of  them.'1  While  the 
courts  have  not  always  clearly  distinguished  between  this 
source  and  that  of  custom  and  practice,  the  difference  is  of 
no  special  importance. 

°Bank  v.  Bank,  10  Wallace,  604. 

P  Minor  v.  Bank,  i  Peterson,  70;  Bank  v.  Dandridge,  12  Wheat.,  64;  Bank  v. 
Bank,  i  Bliss,  146. 

i  Wild  v.  Bank  of  Passamaquaddy,  3  Mason,  505;  Ryan  v.  Dunlap,  17  111., 
45- 


THE  CASHIER.  121 

Fifth. — From  direction  of  the  directors.  A  cashier's  du- 
ties are  defined  by  law,  and  all  persons  are  supposed  to  know 
them.  "  Ignorance  of  the  law  excuses  no  one;"  but,  with  a 
bank,  this  does  not  pertain  to  duties  defined  by  the  directors. 
If  a  cashier's  duties  are  not  founded  on  usage  or  statute,  but 
wholly  on  by-laws,  then  a  person  dealing  with  him  is  required, 
at  his  peril,  to  ascertain  what  authority  has  been  conferred  on 
him/ 

Sixth. — By  ratification.  His  independent  acts  may  subse- 
quently receive  the  ratification  of  the  board  of  directors. 

§  255.  Certificate  of  Deposit.  A  cashier  has  authority  to 
issue  an  ordinary  demand  certificate  of  deposit,  of  which  the 
following  is  a  form: 

DES  MOINES  NATIONAL  BANK. 

$935-40-  DES  MOINES,  IOWA,  May  17,  1894. 

This  is  to  certify  that  John  A.  Kasson  has  deposited  with  this  bank  Nine 
Hundred,  Thirty-five  &  40-100  Dollars,  payable  on  return  of  this  certificate 
properly  indorsed. 

No.  i.  V.  F.  NEWELL,  Cashier. 

A  time  certificate  of  deposit  is  one  payable  at  a  specified 
time,  and  banks  cannot  issue  them  whenever  there  is  a  statute 
declaring  that  banks  shall  not  make  notes,  bills  or  contracts 
for  paying  money  at  a  fixed  time  with  interest. 

Issuing  certificates  of  deposit  is  an  incident  of  every  day's 
business  in  a  bank,  and,  while  they  are  contracts  of  the  bank, 
they  do  not  require  the  president  or  vice-president's  signature. 
The  signature  of  the  cashier  or  of  the  receiving  or  paying  tel- 
ler is  considered  sufficient  to  bind  the  bank. 

Unless  ratified  by  the  directors,  a  cashier's  certificate  of 
deposit  to  himself  is  void.  Such  a  paper  shows  by  its  face 
that  it  is  irregularly  done, and  no  one  can  claim  to  be  a  bona  fide 
holder  without  notice  of  the  cashier's  want  of  authority  to 
issue  it.  He  cannot  represent  both  sides  of  a  contract.  "  It 
takes  two  to  make  a  contract,"  and  the  law  will  not  permit  an 

rRice  v.  Peninsular  Club,  52  Mich.,  87. 


122  THE  BUSINESS  OF  BANKING. 

agent's  private  interest  to  come  between  him  and  his  princi- 
pal.3 

§  256.  Authority  to  Borrow  Money.  It  has  been  decided 
in  many  cases  that  a  cashier  has  power  to  borrow  money  for 
the  bank  and  to  execute  its  notes  therefor.  This  authority  is 
implied  from  his  official  designation  as  cashier,  and  it  is  not 
necessary  to  prove  that  such  authority  has  been  conferred  by 
the  board  of  directors,  even  by  ratification.  His  acts  done  in 
the  ordinary  course  of  the  business  actually  confided  to  him 
are  pri ma  facie  evidence  that  they  are  within  the  scope  of  his 
duty.* 

If  he  has  authority  to  borrow  money  he  may  also  pledge 
the  bank's  property  as  security.  This  would  seem  to  be  a 
necessary  incident  from  the  primary  power." 

§  257.  Certification.  A  certified  check  is  one  on  the  face 
of  which  the  cashier,  or  other  proper  officer  of  the  bank,  has 
written  or  stamped  the  word  "  Certified,"  "  Good,"  or  *'  Good 
when  properly  indorsed,"  or  words  to  that  effect,  and  written 
thereon  the  amount,  and  his  signature.  This  is  in  effect  the 
association's  written  promise  to  pay,  and  the  power  to  do  such 
acts  is  regarded  as  inherent  in  the  cashier  by  virtue  of  his 
office.  Such  acts  will  bind  the  institution  for  the  amount  certi- 
fied, whether  exceeding  the  drawer's  deposit  or  not,  if  the 
holder  does  not  know  that  the  deposit  is  less  than  the  certifi- 
cation. The  National  Bank  Act  prohibits  national  associa- 
tions from  certifying  for  a  greater  amount  than  the  drawer 
has  on  deposit  at  the  time  of  certifying,  though  should  an 
officer  do  this  the  bank  will  be  bound,  though  the  cashier 
may  be  held  liable  to  the  bank  under  the  law. 

If,  however,'  a  holder  should  know  that  the  drawer  had  no 


sLee^.  Smith,  84  Mo.,  304;  Bank  v.  Bank,  95  U.  S.,  557. 

'Bank  v.  Perkins,  29  N.  Y.f  554;  Creswell  v.  Lanahan,  102  U.  S.,  347;  Coats 
v.  Donnell,  94  N.  Y.,  168;  Barnes  v.  Bank,  19  N.  Y.,  152;  Donnell  v. 
Bank,  80  Mo.,  165;  Bank  v.  Wheeler,  21  Ind.,  90;  Bank  v.  Bank,  4  McLean, 
208. 

"State  '.'.  Davis,  50  How.,   447. 


THE  CASHIER.  123 

funds  on  deposit  at  the  time  of  certification,  even  though  the 
cashier  certified  that  he  had,  the  bank  would  not  be  liable. 

One  who  deals  with  an  agent  has  no  right  to  confide  in  the 
representation  of  the  agent  as  to  the  extent  of  his  powers. 

Some  banks  give  a  check  of  the  bank — a  cashier's  check — 
instead  of  certifying  a  dealer's  check. 

A  cashier  cannot  certify  his  own  checks,  for  the  reason  that 
thereby  he  would  be  making  a  contract  between  himself  and 
his  bank,  and  thus  be  acting  as  both  principal  and  agent,  which 
is  not  within  the  law/ 

He  cannot  certify  an  irregular  check  nor  a  post-dated  one.w 

§  258.  Authority  to  Indorse  the  Bank's  Paper.  With 
the  right  to  sell  and  convey,  a  bank  has  the  power  to  transfer 
its  negotiable  paper,  and  such  transfer  is  the  duty  of  the 
cashier.  At  one  time  his  power  to  indorse  was  questioned,  but  it 
is  now  well  understood  that  he  has  such  power.  And  whenever 
he  has  authority  to  indorse,  the  law  will  presume  that  the 
transfer  was  proper.  In  other  words,  when  nothing  appears 
on  the  face  of  an  instrument  or  any  of  the  circumstances  con- 
nected with  the  assignment,  to  throw  suspicion  thereon,  the 
purchaser  need  not  make  inquiry  concerning  the  cashier's  au- 
thority to  indorse/ 

The  cashier  need  not  advise  the  directors  when  he  indorses 
the  bank's  paper — he  binds  the  bank  without  their  sanction. 

The  cashier  nor  any  other  officer  has  any  power  to  bind 
the  bank  on  an  accommodation  indorsement/  still,  as  the 
cashier  is  the  proper  person  to  indorse  the  bank's  paper,  a 
bona  fide  holder,  before  maturity,  is  not  bound — when  he 
takes  it  thus  properly  indorsed — to  ascertain  whether  the 
bank  owned  it  or  not  at  the  time  of  the  indorsement,  and  the 

vLee  v.  Smith,  84  Mo.,  304;  Bank  v.  Bank,  95  U.  S.,  557. 
"Popes/.  Bank,  57  N.  Y.,  126;  Bank  v.  Bank,  52  Barb.,  592. 
xRobbz>.  Bank,  41  Barb.,  586;  Blairs.  Bank,  2  Flippin.  in. 
vBank  v.    Globe  Works,   101,   Mass.,  57;   Hall  v.  Auburn  Turnpike  Co.,  27 
Cal.,  255;  Bank  v.  Ins.  Co.,  50  Conn.,  167. 


124  THE  BUSINESS  OF  BANKING. 

bank  will  be  responsible.2  The  one  rule  is  just  as  necessary 
for  the  protection  of  the  innocent  holder  as  the  other  is  for 
the  protection  of  the  bank. 

§  259.  Indorsement  for  Collection.  A  bank  is  not  liable 
as  an  indorser  when  the  cashier  indorses  a  note  simply  for  col- 
lection.* But  when  he  indorses  it  in  the  regular  way  and 
sends  it  for  collection,  and  the  person  receiving  it  uses  it  for 
his  own  use,  the  bank  will  be  liable  as  an  indorser. b 

When  an  indorsement  is  made  to  a  cashier  it  is  regarded  as 
an  indorsement  to  his  bank,  and  suit  may  be  brought  thereon 
in  the  name  of  the  bank.  Notes  transmitted  from  bank  to 
bank,  indorsed  by  and  to  their  respective  cashiers,  have  always 
been  regarded  as  bank,  and  not  individual,  paper.6  The  in- 
dorsement has  never  been  required  to  be  in  the  bank's  name. 
If  the  suffix  "Cashier,"  "Cash'r,"  "Cash.,"  "G'r,"  «Cr.,"is  add- 
ed to  the  cashier's  name  in  an  indorsement,  it  will  be  regarded 
as  official.  The  fact  that  the  indorsement  was  made  by  the 
cashier  in  his  official  capacity  is  sufficient  to  show  it  was  made 
on  behalf  of  the  bank,  and  the  holder  has  the  right  to  prefix 
the  name  of  the  bank  if  he  so  desires. d  His  official  name  has 
become  synonymous  with  the  bank  itself,  and  paper  payable 
to  the  cashier  of  a  designated  bank,  or  to  his  order,  may  be 
sued  by  the  bank,  without  indorsement.6 

A  cashier  has  authority  to  indorse  the  bank's  paper,  but  this 
does  not  give  him  authority  to  release  an  indorser.  None  of 
the  conditions  of  the  contract  can  be  changed  by  the  payet 
and  indorser/ 

§  260.  Authority  to  Collect  Debts.  A  cashier's  authority 
to  collect  the  debts  due  the  bank  is  as  well  known  as  his  au- 
thority to  indorse.6 

•Bank  v.  Bank,  16  N.  Y.,  125;  Houghton  v.  Bank,  26  Wis.,  663 

aBank  v.  Bank,  29  N.  Y.,  619. 

bBank  v.  Bank,  29  N.  Y.,  619. 

0  Lacey  v.  Bank,  4  Neb.,  179;  Bank  v.  Ferris,  17  Conn.,  271. 

dClaflin  v.  Bank,  36  Barb.,  540;  Bank  v.  Bank,  19  N.  Y.,  312. 

e  Nave  v.  Bank,  87  Ind.,  204. 

f  U.  S.  v.  Bank,  21  How.,  356;  Thompson  v.  McKee,  5  Dakota,  172. 

8  Watson  V.  Bennett,  12  Barb/,  196 


THE  CASHIER.  125 

The  delivery  of  notes  for  collection  to  an  attorney,  or  other 
agent,  by  the  cashier,  is  one  of  his  customary  duties,  and  it 
was  long  ago  decided  that  he  had  authority  to  perform  such 
acts.11 

§  261.  Compromise.  Unless  the  power  is  expressly  given 
by  the  board,  a  cashier  has  no  authority  to  alter,  change  or 
compromise  a  debt  due  the  bank.1  He  has  no  inherent  author- 
f  ity  to  compromise  or  release  a  debt  without  consideration; 
and  whenever  he  has  such  authority  its  source  is  usage  unless 
directorial.  In  those  states  in  which  the  usage  has  not  been 
established,  compromise  can  be  effected  only  by  the  directors/* 

§  262.  Authority  to  Discount.  It  is,  generally,  no  part  of 
a  cashier's  duty  to  make  discounts;  this  is  the  duty  of  the  di- 
rectors. Many  banks,  however,  confer  such  authority  on  the 
cashier.  There  are  occasions  where  the  cashier,  notwithstand- 
ing the  regulations  to  consult  committees  and  directors,  is 
justified  in  making  discounts  without  such  consultation. 
Should  the  board  or  committe  not  meet,  or  should  they  neg- 
lect their  duties,  the  cashier  cannot  be  regarded  as  negligent  in 
not  consulting  them  concerning  the  business  of  the  bank.  It 
would  be  quite  impracticable  for  a  cashierto  leave  his  place  of 
business  as  each  transaction  requiring  attention  occurred,  to 
look  up  persons  employed  in  other  lines  of  business  and  con- 
sult them  in  regard  to  such  transactions.11 

Where  he  has  no  authority  to  discount,  he  could  not,  of 
course,  bind  the  bank  by  a  promise  to  make  a  loan.1 

An  agent  cannot  bind  his  principal  to  an  agreement  to  which 
he  is  a  party,  so  a  cashier  cannot  bind  the  bank  by  discount- 
ing his  own  note."' 

§  263.  Re-discounts.  Should  a  banker  discover  that  he 
has  discounted  more  paper  than  he  can  well  carry  without 

h  Eastman  v.  Coos  Bank,  i  N.  H.,  26. 

1  Ecker  v.  Bank,  59  Md.,  291. 

JSee§§  163,  2io;BolIes  on  Bank  Officers,  §  487. 

k  Bank  v.  Burt,  93  N.  Y.,  233;  Bolles  on  Bank  Officers,  §§  182,  205,  493. 

^loores  v.  Bank,  15  Federal  Rep.,  141. 

"'Rhods;'.  Webb,  24  Minn.,  292. 


126  THE  BUSINESS  OF  BANKING. 

danger  of  loss  or  financial  embarrassment,  he  may  re-discount 
a  part  of  such  paper  in  another  bank.  While  this  is  legitimate, 
it  is  usually  considered  as  evidence  of  bad  management,  and 
bad  management  is  a  forerunner  of  failure.  But  a  cashier 
has  an  implied  power  to  procure  a  bona  fide  re-discount  of  the 
paper  of  the  bank  and  his  acts  will  bind  the  association.11 

§  264.  Transferring  the  Stock.  When  requested  by  the  pro- 
per parties,  it  is  the  duty  of  the  cashier  to  make  transfers  of 
stock,  and  in  doing  so  he  acts  for  the  bank,  not  for  the  stock- 
holders. Consequently  he  is  in  no  way  personally  liable  to  the 
stockholders  for  money  given  in  payment  for  stock.  The  stock- 
holders cannot  sue  him,  but  must  sue  the  bank.0 

In  connection  with  this  duty  is  the  issuing  of  new  certificates 
to  purchasers.  And  when  shares  are  sold  for  taxes,  the  cash- 
ier can  legally  issue  a  new  certificate  of  stock  to  the  purchaser, 
who  will  be  entitled  to  the  accruing  dividends,  whether  the 
tax  for  which  the  shares  were  sold  was  rightly  assessed  or 
not.p 

§  265.  Application  of  Payment.  If  the  debtor  owes  a  bank 
different  debts,  the  cashier  may  apply  his  money  in  the  bank 
to  whichever  debt  he  may  choose,  if  the  creditor  should  make 
no  application.  A  cashier  has  authority  to  receive  all  moneys 
and  to  apply  them  subject  to  the  direction  of  the  board.  Ver- 
bal directions  from  the  directors  is  sufficient.11 

§  266.  Mistakes  Corrected.  If  a  cashier  makes  a  mistake 
and  credits  a  dealer,  in  his  pass  book,  with  a  sum  in  excess  of 
the  deposit  actually  made,  he  may  have  it  corrected.  While 
an  entry  in  a  pass  book  is  the  bank's  receipt  for  the  money 
deposited,  yet  it  is  well  settled  that  a  receipt  is  only  an  evi- 
dence— not  proof — of  payment,  and  may  be  explained  by  parol 
evidence. 

nBank  v.  Bank,  95  U.  S.,  557;  see  §  448. 
0  Brown  v.  Adams,   5  Bliss,  181. 
P  Smith  v.  Bank,  4  Gush.,  i. 
<»Bankz>.  Benedict,  15  Conn.,  437. 


THE  CASHIER.  127 

So,  too,  he  may  have  a  mistake  in  his  accounts  corrected, 
even  after  the  bank  becomes  insolvent  and  is  in  the  hands  of 
a  receiver/ 

$  267.  Limitations  of  a  Cashier's  Powers.  A  cashier  has 
no  power  by  virtue  of  his  office  to  bind  the  bank,  except  in 
the  line  of  his  ordinary  duties,  and  the  ordinary  business  of  a 
bank  does  not  comprehend  a  contract  made  by  a  cashier— 
1  without  delegation  of  power  by  the  directors — involving  the 
payment  of  money  not  loaned  by  the  bank  in  the  customary 
way.8 

The  above  is  a  statement  of  the  general  rule.  In  particu- 
larizing we  shall  merely  mention  some  of  the  things  which  a 
cashier  cannot  do: 

1.  He  cannot  act  when  the  bank  is  the  adverse  party. 

2.  He  cannot   draw  checks  on  his  correspondent  for  his 
own  personal  use. 

3.  He  cannot  sell  the  bank's  property. 

4.  He  cannot  sell  the  bank's  real  estate. 

5.  He  cannot  promise  to  pay  a  debt  not  owed. 

6.  He  cannot  promise  to  pay  a  check  without  funds. 

7.  He  cannot  promise  to  pay  a  depositor  after  the  bank 
is  declared  insolvent. 

S.  He  cannot  transfer  notes  to  him  in  payment. 
9.   He  cannot  purchase  stock  for  the  bank. 

10.  He  cannot  assign  a  non-negotiable  note. 

11.  He  cannot  discharge  a  debtor  without  payment. 

12.  He  cannot  keep  a  surplus  from  a  sale  of  securities. 

13.  He  cannot  revive  a  debt  barred  by  the  statutes  of  lim- 
itation, etc. 

Other  limitations  on  the  cashier's  powers  are  given  in  the 
Bank  Act.  Statutory  regulations  of  the  different  states  may 
further  limit  his  authority. 

§  268  The  Bank's  Liability  for  the  Cashier's  Acts.  The 
general  rule  is  stated  thus  :  "  A  bank  is  liable  tor  the  acts 

»l3eers  i>.  Maynard,  i  Bailey's  Eq.,  S.  Car.,  168. 
"  Martin  v.  Wells,  no  (J.  S.    7. 


128  THE  BUSINESS  OF  BANKING. 

of  its  cashier  which  are  done  within  the  limits  of  his  authority. 
Although  a  banking  corporation  is  compelled  to  act  by  others, 
yet,  when  these  are  part  of  its  organic  machinery,  like  its 
cashier,  it  is  as  much  responsible  for  their  omissions  and  com- 
missions as  is  a  natural  person  who  employs  assistants  in  the 
execution  of  any  commission."6 

Action  may,  therefore,  be  sustained  against  a  bank  for  the 
acts  of  its  cashier,  or  other  officers,  in  performing  its  ordi- 
nary duties,  or  by  special  direction  of  the  directors." 

The  bank  is  liable  for  correct  entries  in  its  books  of  ac- 
count, and  for  a  proper  account  of  general  deposits,  and,  if 
from  a  lack  of  such  correct  entries  any  person  be  injured,  he 
would  have  a  remedy. 

§  269.  Responsibility  for  Deposits.  Deposits  are  of  two 
kinds  :  special  and  general.  A  special  deposit  consists  of  a 
particular  article,  or  articles,  left  with  the  bank  to  be  called 
for  when  wanted.  The  bank  becomes  the  trustee  for  the  de- 
positor and  is  liable  only  for  gross  negligence.  If  an  officer 
should  rob  the  bank  of  a  special  deposit  the  bank  would  not 
generally  be  liable,  for  the  reason  that  the  act  was  in  no  way 
connected  with  the  officer's  employment  by  the  bank.  Of 
course  if  the  bank  had  reasons  to  believe  that  he  was  stealing 
and  did  not  interfere,  it  would  be  held  responsible.  But  banks 
do  not  warrant  the  honesty  of  their  servants,  assuming  only 
that  they  are  skillful  and  faithful  in  the  performance  of  their 
duties/ 

A  general  deposit  is  money  deposited  with  a  bank  to  be 
checked  out  from  time  to  time  as  the  depositor  may  desire. 
This  is  considered  to  be  a  kind  of  a  loan  ;  for  the  money  no 
longer  belongs  to  the  depositor,  as  in  a  special  deposit,  but 
becomes  the  property  of  the  bank,  and  the  deposit  is  a  loan. 
The  relation  of  bank  and  depositor  becomes  that  of  a  debtor 
and  creditor,  and  subsequent  loss  of  the  money  does  not 

*  Bank  v.  Bank,  i  Parsons  Select  Cases,  180. 
"  Rehoboth  v.  Rehoboth,  23  Pick.,  139. 
v  Foster  v.  Bank,  17  Mass.,  479. 


THE  CASHIER.  129 

relieve  the  bank  from  its  obligation  to  pay.  An  officer  could 
not  steal  a  general  depositor's  money,  for  he  has  none  ;  it  is 
the  bank's  money,  and  the  bank  owes  the  depositor  as  in  the 
case  of  any  other  debtor. 

$  270.  Responsibility  for  other  Acts.  Banks  are  also 
generally  liable  for  neglect  on  the  part  of  their  officers  in  giv- 
ing proper  notice  to  the  parties  to  a  note  in  their  hands  for  col- 
lection, on  the  failure  of  a  maker  to  pay.w 

Should  a  cashier  draw  a  draft  on  another  bank,  contrary  to 
the  statute,  to  conceal  an  embezzlement,  his  bank  would  be 
liable  therefor.  The  bank  is  responsible  for  all  his  acts  within 
the  scope  of  his  authority,  and  such  act  is  certainly  within  his 
authority  ;  and  if  he  defrauds  the  bank,  it  must  bear  the  loss 
and  look  to  him  for  reimbursement/ 

Should  a  cashier  misapply  money  collected  on  a  note,  or 
draft,  the  misapplication  by  him  is  a  misapplication  by  the 
bank,  and  it  must  make  good  the  amount/ 

If  a  cashier  or  teller  should  take  a  check  and  put  it  on  the 
cancelling  fork,  this  would  not  prevent  him  from  declining  to 
pay  it  upon  learning  that  the  drawer's  funds  were  insufficient, 
or  the  check  was  irregularly  drawn.2  The  same  rule  would, 
no  doubt,  apply  to  cases  where  the  check  is  stamped  "paid" 
before  the  officer  discovers  that  anything  is  wrong.  See  §  321. 

If,  through  inattention,  or  otherwise,  the  directors  permit  a 
cashier  to  pursue  a  particular  line  of  action  for  a  considerable 
period  of  time,  without  objection,  the  bank  will  be  bound  for 
his  acts.  For  example,  the  directors  of  a  bank  permitted  the 
cashier  to  conduct  the  business  without  interference  for  sev- 
eral years,  and  was  regarded  as  having  conferred  on  him  au- 
thority to  transact  any  business  which  he  was  not  prohibited 
by  the  bank's  charter  from  transacting.* 

"Fosters/.  Bank,  17  Mass.,  479. 

"Bank  v.  Bank,  16  Gray,  534. 

JTown  of  Concord  v.  Bank,  16  N.  H.,  260. 

zWar\vick  v.  Rogers,  5  Mann  &  Gang.,  340. 

aCaldwell  i/.  Bank,  64  Barb.,  333. 


13°  THE  BUSINESS  OF  BANKING, 

A  cashier  may  bind  his  bank  even  outside  of  his  usual  au- 
thority, by  sanction  of  the  directors.  Such  authority  need  not  be 
in  writing,  but  may  be  by  parol,  or  implied  by  circumstances. 
If  he  transacts  business  which  he  ought  not  to  transact,  the 
directors  must  express  their  disapproval,  or  it  will  be  considered 
a  tacit  approval  and  satisfaction  on  their  part.  They  are  pre- 
sumed to  know  what  is  taking  place  in  their  bank  and  third 
parties  will  not  be  compelled  to  suffer  loss  or  injury  on  account 
of  their  inaction.1* 

Likewise,  a  cashier's  authority  and  his  sphere  of  action  may 
be  narrowed  by  restrictions  voted  by  the  board.  But,  in 
transactions  coming  within  the  usual  sphere  of  a  bank  cash- 
ier's  duty,  it  will  have  to  appear  that  the  third  party  knew  of 
the  restricted  powers  of  the  cashier,  or,  when  he  goes  beyond 
that  limit,  the  bank  will  be  liable  the  same  as  though  no  restric- 
tions had  been  given." 

§  271.  Liability  for  Misconduct.  Cashiers,  and  other 
officers  of  a  bank,  are  agents,  and  are  liable  to  their  principal 
for  misconduct  the  same  as  other  agents.  If  they  fail  to  exer- 
cise reasonable  skill  and  ordinary  diligence,  and  the  bank  suf- 
fers in  consequence,  they  are  liable  to  the  bank.  Should  a 
cashier  misapply  or  wrongly  convert  any  of  the  money  or 
property  of  the  bank,  the  bank  would  be  liable  to  third  par- 
ties, but  the  agent  would  be  liable  to  the  bank. 

If  the  directors  neglect  their  obvious  duty,  this  will  not 
excuse  the  cashier  from  neglecting  his  duty.  Thus,  if  a  book- 
keeper should  commit  some  wrong,  the  cashier,  if  negligent  in 
supervising  his  work,  would  be  liable,  even  though  the  direct- 
ors might  by  due  diligence  have  discovered  the  wrong/ 

If  the  directors  should,  by  vote,  authorize  the  cashier  to 
commit  a  fraud  and  deprive  the  stockholders  of  their  interest, 
he  would  still  be  liable  for  such  acts.  The  directors  may  del- 

b Martina.  Webb,  no  U.  S.,  7 
cBankz/.  Bank,  loWall.,  604. 
6  Batchelor  v.  Bank,  78  Ky.,  435. 


THE  CASHIER.  131 

egate  authority  to  the  cashier  to  transact  such  business  as 
they  have  power  to  transact  for  themselves,  but  they  have  no 
power  to  commit  a  fraud  on  the  stockholders,  or  any  one  else, 
and  so  they  cannot  authorize  the  cashier,  or  any  one  else,  to 
do  it  for  them.0 

A  tort  is  denned  to  be  a  civil  wrong  or  injury,  and  a  cashier 
is  liable  to  his  principal  for  all  his  tortious  acts. 

If  the  president  is  the  managing  officer  and  the  cashier  is 
acting  attentively  and  prudently,  under  his  directions,  the 
cashier  will  not  be  liable. f 

§  272.  Liability  for  Subordinates.  The  cashier  is  not  an 
insurer  of  the  honesty  and  truthfulness  of  those  who  occupy 
subordinate  positions  in  the  bank,  and,  while  it  is  his  duty  to 
supervise  and  control  the  affairs  of  the  bank  and  its  officers 
under  him,  in  the  discharge  of  their  duties,  he  is  required  to 
exercise  only  ordinary  diligence  and  skill.  He  is  not  required 
to  examine  by  actual  inspection  every  entry  made  by  those 
under  him,  but  his  care  extends  to  a  general  supervision  of 
the  books  and  affairs  of  the  bank ;  and  when  it  is  shown  that 
he  has  exercised  such  ordinary  diligence  in  the  control  of  his 
subordinates,  and  in  the  supervision  of  their  work,  he  has 
discharged  his  duty.  Thus,  if  the  teller  and  bookkeeper 
should  embezzle  money  from  the  bank  and  cover  it  up  in 
such  entries  that  it  would  require  extraordinary  diligence  to 
discover  the  fraud,  the  fault  cannot  be  attributed  to  the 
cashier,  unless  he  had  knowledge  of  the  fact  that  such  frauds 
were  being  perpetrated.^' 

If  the  directors  should  direct  a  subordinate  to  do  any  act, 
which  properly  belongs  to  the  cashier  to  perform  or  supervise 
in  its  performance,  and  such  subordinate  should  neglect  such 
performance,  the  cashier  would  not  be  liable.11 

eSee  Minor  z:  Bank,  i  Pet.,  46. 
fBank  v.  Ten  Eyck,  48  N.  Y.,  305. 
«  Batchelor  v.  Bank,  78  Ky.,  435. 
h  Bank  v.  Comegys,  12  Ala.,  772. 


J32  THE  BUSINESS  OF  BANKING. 

§273.  Various  Duties  of  a  Cashier,  ist.  A  cashier  should 
never  cease  to  study  the  workings  of  his  bank.  Information 
should  be  sought  from  every  source,  and  especially  from  the 
minor  officers  of  the  bank.  The  clerks,  being  in  constant 
contact  with  the  routine  of  their  divisions  of  the  work,  will  be 
able  to  make  suggestions  that  will  add  very  materially  to  the 
success  of  the  institution.  A  cashier  who  is  so  thoroughly 
experienced  and  so  learned  in  his  work  that  he  can  afford  to 
slight  the  hints  and  suggestions  of  a  corps  of  good  clerks  and 
tellers  is  on  the  highway  to  failure. 

2d.  A  cashier  should  never  reprove  or  find  fault  with  any 
of  his  subordinates  in  the' presence  of  customers,  and  usually 
this  need  not  be  done  in  the  presence  of  other  clerks. 

3d.  He  should  see  that  all  his  officers  treat  every  customer 
with  due  courtesy.  He  should  set  a  proper  example  in  this 
respect  in  his  intercourse  with  his  subordinates. 

4th.  The  cashier  should  know  at  all  times  where  his  bank 
stands  and  where  it  is  going  in  its  financial  career.  When 
the  day's  business  is  over  he  should  know  how  the  totals  com- 
pare with  yesterday's  totals.  This  may  be  accomplished  by  a 
"Statement  of  totals  for  Cashier"  that  may  be  furnished  by 
the  bookkeeper. 

5th.  The  cashier  has  charge  of  the  banking  rooms,  and  it  is 
his  duty  to  see  that  they  are  kept  in  proper  order,  and  that 
the  public  desks  are  supplied  with  the  proper  materials  for 
customers'  use.  He  attends  to  the  taxes,  and  repairs,  and 
the  collection  of  sub-rents,  and  takes  charge  of  the  entire 
building.  If  the  bank  rent  their  rooms,  he  attends  to  paying 
the  rent,  and  sees  that  the  proper  repairs  are  made.  Neat- 
ness and  order  are  characteristic  of  a  good  cashier. 

6th.  The  cashier  is  responsible  for  the  care  of  all  the  cash, 
securities,  and  all  the  valuables  of  the  bank,  and  therefore  has 
special  custody  of  the  vaults  and  strong  rooms.  He  should 
see  that  the  bank  has  ample  accommodations  in  this  respect 
and  that  they  are  kept  in  the  best  condition.  If  he  does  not 


THE  CASHIER.  j^ 

attend  personally  to  the  locking  and  unlocking  of  the  vaults, 
he  is  expected  to  use  the  greatest  caution  in  deputizing  work 
of  this  kind. 

7th.  A  complete  list  of  the  bank's  depositors,  with  their 
addresses  and  other  items  of  information,  will  be  of  great  help 
to  cashiers  of  large  banks.  The  arrangement  should  be  alpha- 
betical, so  that  reference  may  be  made  quickly.  There  are 
often  many  depositors  of  large  banks  who  are  not  likely  to  be 
remembered,  and  this  list  will  be  of  great  service,  and  many 
cashiers  find  it  exceedingly  useful.  In  making  it,  enough 
space  should  be  left  between  the  alphabetic  letters  to  add 
new  names. 

§  274.  Bank  Inspection.  In  §  19  we  find  that  some  per- 
sons consider  that  the  freedom  which  is  allowed,  by  the  law, 
to  state  banks  is  an  advantage.  This  can  hardly  meet  with 
the  approbation  of  honest  men  who  believe  in  doing  right 
and  keeping  within  the  dictates  of  law  and  order. 

We  have  also  shown  (§16)  that  national  banks  are  the 
most  perfect  in  existence. 

What  has  made  the  present  system  so  popular  among 
bankers  and  level  headed  business  men?  It  is  manifestly  the 
system  of  bank  inspection.  People  who  have  money  to  de- 
posit naturally  want  to  put  it  where  it  will  be  perfectly  safe, 
and  experience  has  taught  them  to  put  it  in  a  national  bank 
in  preference  to  a  state  or  private  institution.  They  easily 
ascertain  from  statistics  that  there  have  been  fewer  disastrous 
failures  among  national  banks  than  among  any  other  class; 
they  know  that  national  banks  are  under  governmental  super- 
vision and  examination,  and  they  feel  safer  in  consequence. 

Many  sneers  are  cast  at  government  reports  and  examina- 
tions, and  we  are  told  that  they  show  nothing  of  the  real 
condition  of  a  bank's  affairs.  Perhaps  like  the  most  of  human 
things  they  are  a  long  way  from  perfection,  but,  in  spite  of 
their  deficiencies,  with  all  their  faults  and  inadequateness, 
they  are  the  chiefest  cause  of  the  high  confidence  with  which 
national  banks  are  regarded  over  all  the  country. 


134  THE  BUSINESS  OF  BANKING. 

It  takes  a  vast  amount  of  mismanagement  to  seriously 
wreck  a  bank,  but  a  very  little  stealing  and  dishonesty,  if  left 
to  grow,  will  send  the  concern  and  everybody  in  connection 
with  it  to  bankruptcy.  All  hail !  then,  we  say,  to  any  system 
of  inspection  which  decreases  the  chances  of  rascality — and 
the  more  of  it  the  better. 

No  honest  man  should  object  to  an  examination  of  his 
doings  when  they  so  directly  affect  public  welfare  as  do  those 
of  bankers.  Bankers  ask  the  custody  of  other  people's  money, 
and  should  be  willing  to  accord  them  the  greatest  possible 
measure  of  safety  in  return  for  the  confidence. 

Inspection  is  a  preventive,  not  a  cure.  Bankers  have 
great  responsibilities  and  great  temptations,  and  it  is  a  kind- 
ness to  them,  as  well  as  to  their  customers,  that  dishonesty 
should  be  made  as  difficult  as  possible. 

Publicity  is  not  detrimental  to  sound  nor  to  successful 
banking.  If  there  is  something  weak  or  rotten  anywhere 
about,  it  is  quite  natural  that  it  should  seek  to  escape  the 
light.  The  banker  who  objects  to  reports  because  they  give 
away  the  secrets  of  his  business,  is  scaring  at  shadows,  unless 
there  is  a  "secret"  about  it  of  which  he  has  good  cause  to  be 
ashamed.  At  least  that  is  the  way  other  people  look  at  it.1 

"The  national  banking  system  far  surpassed  the  expecta- 
tions of  its  founders.  So  far  as  it  was  wanted  as  a  means  of 
marketing  bonds  it  was  a  failure,  because  it  came  into  success- 
ful operation  too  late;  but,  even  as  furnishing  a  currency,  it  is 
now  ceasing  to  be  useful,  because  the  nation's  bonds,  by  which 
the  notes  are  secured,  are  fast  disappearing.  The  public  there- 
fore, after  seeing  one  proposal  after  another  for  a  new  kind  of 
security  for  the  note-issues  thrown  aside,  assume  that  when 
the  4  per  cent,  bonds  (due  in  1907)  are  gone,  no  security  for 
the  notes  will  be  devised,  and  that  the  system  will  disappear 
in  toto.  This  assumption,  it  is  clear,  is  based  on  the  idea  that 
the  note-issues  are  essential  to  the  existence  of  the  banks;  an 

1  C.  A.  Murdock  in  The  Financier,  May  16,    1892. 


THE  CASHIER.  135 

idea  which  we  see  to  be  wholly  unfounded.  The  great  ques- 
tion as  to  the  best  medium  of  exchange  for  the  country  is 
one  thing,  separate  and.  apart  from  the  best  system  of 
banking  included  under  the  heads  of  discount  and  deposit. 

"  Independently  of  its  perfect  system  of  issues,  the  national 
banks  have  proved  the  best  the  country  has  ever  enjoyed.  This 
means  that  for  nearly  thirty  years  the  business  interests  of  the 
country  have  been  interweaving  their  operations  with  those 
of  a  good  banking  system,  and  trade  has  been  accordingly 
steadier.  Many  firms  establish  private  banks  for  discount  and 
deposit,  but  mainly  because  they  escape  the  requirements  for 
publicity  of  accounts  and  examinations  exacted  of  the  national 
banks  ;  but,  in  the  interest  of  the  depositors  and  the  public, 
the  more  they  know  of  a  bank's  condition  the  better.  The  na- 
1  ional  banking  system  is,  therefore,  democratic,  protecting  the 
rights  of  the  weaker  shareholder  and  depositor.  Should  the 
national  banking  system  be  destroyed  by  ignorant  legislation, 
the  distresses  arising  from  a  variegated  state  bank  system 
would  be  a  convincing  demonstration  of  the  superiority 
of  the  system  now  existing.  It  stands  to  reason  that  a  con- 
centration of  publicity  and  attention  to  one  unified  system  of 
banks  will  afford  greater  security  than  a  multiplication  of  sys- 
tems, each  governed  by  the  varying  whims  of  state  legislatures, 
which  usually  regard  a  bank  as  an  offense  to  society.  "j 

§  275.  Taxation  of  Bank  Shares.  While  we  have  given 
(§  142  to  §  151)  the  provisions  of  the  National  Bank  Act  on 
taxation,  yet  the  subject  is  deemed  to  be  of  so  great  import- 
ance that  we  here  present  a  further  elucidation  of  the  matter. 

"The  authority  to  tax  shares  in  national  banking  associa- 
tions," says  Judge  Stone,k  "for  state  purposes  is  uniformly  held 
to  be  derived  from  the  act  of  Congress  which  confers  the 
power."  The  power  is  conferred  with  limitations,  (§142)  and 
these  cannot  be  misunderstood.  The  first  was  intended  to 

JProf.  J.  L.  Laughlin,  in  Chautauquan,  Oct.,  1892. 
kMaguire  v.  Board  of  Revenue,  71  Ala.,  412. 


136  THE  BUSINESS  OF  BANKING. 

prevent  unfriendly  discriminating  assessments,  thus  discourag- 
ing investments  in  the  shares  of  national  banks.  The  state 
may  tax  the  shares  for  the  support  of  its  government,  but  not 
at  a  greater  rate  than  that  of  other  moneyed  capital.1 

The  capital  stock  cannot  be  assessed,  but  only  the  shares, 
and  against  their  owners,  the  same  as  other  property.  A 
state  statute  providing  for  "the  taxation  of  all  shares  of 
moneyed  corporations,"  will  include  the  shares  of  national 
banks. 

The  movable  property,  and  assets  of  a  national  bank,  as 
office  furniture,  safes,  etc.,  are  not  taxable."1 

§  276.  Higher  Valuation.  It  has  not  been  attempted  to 
tax  national  bank  shares  higher  than  other  moneyed  capital, 
but  some  states  have  authorized  an  illegal  valuation  of  them. 
It  is  contended  that  they  may  set  the  value  higher  provided 
they  tax  both  kinds  of  property  at  the  same  rate.  But  the 
courts"  hold  that  the  words  "at  greater  rate  than  is  assessed 
upon  other  moneyed  capital  in  the  hands  of  individual  citizens" 
refer  to  the  whole  process  of  assessment,  and  that  the  shares 
of  national  banks  must  not  be  assessed  at  a  higher  valuation 
in  proportion  to  their  real  value  than  other  moneyed  capital, 
or  the  act  of  Congress  will  be  violated. 

§  277.  The  Shareholders,  not  the  Bank,  are  Assessable. 
The  assessment  must  be  made  against  the  shareholders,  not 
against  the  bank,  nor  can  an  assessor  compel  a  bank  officer  to 
give  a  list  of  the  names  of  the  shareholders,  nor  can  he  assess 
and  enforce  the  same  against  the  property  of  the  bank  on  ac- 
count of  refusal  to  give  such  names. 

1  The  term  "moneyed  capital"  is  used  to  denote  ready  money  or  capital 
invested  in  banking,  or  shares  of  stock  or  other  interests  owned  by  individuals 
in  all  enterprises  in  which  the  capital  employed  in  carrying  on  its  business  is 
money,  and  where  the  profit  of  the  business  is  from  the  use  of  money.  It  in- 
cludes money  invested  in  loans,  discounts,  or  in  securities  for  the  payment  of 
money,  and  is  thereby  distinguished  from  personal  property. 

mBank  z1.  Young,  25  Iowa,  311;  Hubbard  v.  Supervisors,  23  Iowa,  130. 

n  Boyer  i'.  Boyer,  113  U.  S.,  685;  People  v.  Weaver,  100  U.  S.,  539. 


THE  CASHIER.  137 

A  bank  may,  however,  be  required  to  pay  the  taxes  assessed 
.against  its  shareholders.  This  may  be  done  by  statutory  en- 
actment, but  the  bank  will  not  be  liable  for  the  taxes  unless 
it  has  in  its  possession  dividends  or  other  property  belonging 
to  its  shareholders.  Such  a  statute  has  been  enacted  in  Ken- 
tucky,0 and  in  an  Iowa  case"  the  court  remarked  that  while 
the  Iowa  statutes  did  not  require  national  banks  to  do  this, 
yet  such  a  statute  could  be  enacted. 

$  278.  Where  Shares  Must  be  Assessed.  The  Bank  Act 
(§142)  says:  "That  the  legislature  of  each  state  may  pre- 
scribe the  manner  and  place  of  taxing  all  the  shares  of  national 
banks  located  within  the  state,  subject  only  to  two  restrictions:" 
First,  regarding  the  higher  rate  of  taxation,  "  and  second,  that 
the  shares  of  any  national  bank  owned  by  non-residents  of 
any  state  shall  be  taxed  in  the  city  or  town  where  the  bank 
is  located,  and  not  elsewhere." 

This  last  clause  means  the  state  where  the  bank  is  located, 
either  at  the  place  where  the  owners  reside  or  at  the  place 
where  the  bank  is  located,  as  the  legislature  of  the  state  may 

elect.'1 

National  bank  shares  are,  by  the  act  of  Congress,  personal 
property,  and  every  owner  takes  them  subject  to  the  taxing 
power  of  the  state,  and  every  non-resident,  by  becoming  an 
owner,  voluntarily  submits  himself  to  the  jurisdiction  of  the 
state  wherein  the  bank  is  located,  for  all  purposes  of  taxation 
on  account  of  his  ownership.  This  money  invested  in  the 
shares  is  withdrawn  from  taxation  under  the  authority  of  the 
state  in  which  he  resides,  and  submitted  to  the  taxing  power 
of  the  state  where,  in  contemplation  of  law,  his  investment  is 
located.  The  state,  therefore,  within  which  a  national  bank 
is  situated,  has  jurisdiction,  for  the  purposes  of  taxation,  of  all 
shareholders  of  the  bank,  both  resident  and  non-resident,  and 
of  all  its  shares,  and  may  legislate  accordingly/ 

0  Bank  v.  Commonwealth,  9  Wallace,  353. 

i'  Hershire  v.  Bank,  35  Iowa,  272. 

iBuie?'.  Com.,  79  N.  C.,  267. 

'Tappan  v.  15:  nk,   i«)  Wallace,  490;  Bank?'.  Smith,  65  111.,  44. 


138  THE  BUSINESS   OF   BANKING. 

However,  a  state  may  require  national  bank  shareholders  to 
give  notice  to  their  respective  banks  every  year  of  their  resi- 
dence. 

§  279.  Other  Regulations.  The  personal  property  of  an 
insolvent  national  bank,  in  the  hands  of  a  receiver,  is  exempt 
from  state  taxation,  the  same  as  before  his  appointment, 
though  the  shares,  if  they  have  any  value,  may  still  be  taxable 
in  the  hands  of  their  owners. 

The  provisions  of  the  Bank  Act  (§§136,  137  and  13 8)  regard- 
ing visitorial  powers,  will  protect  bank  officers  in  withholding 
bank  books  from  state  officials  who  may  wish  to  inspect  them 
for  the  purpose  of  getting  information  regarding  the  deposits 
of  taxable  persons. 

If  an  illegal  tax  is  collected  it  may  be  recovered. 

When  a  rule  or  system  of  taxation  is  adopted  by  those 
whose  duty  it  is  to  make  assessments,  that  is,  an  illegal  or 
unfriendly  discrimination  against  national  banks,  such  persons 
may  be  restrained  by  injunction  from  collecting  such  taxes. 

A  tax  collector  cannot  seize  the  property  of  a  bank  to  pay 
the  taxes  due  from  shareholders,  but  if  the  tax  remains  un- 
paid until  a  dividend  on  such  shares  is  declared,  the  state,  by 
proper  legal  proceedings,  can  compel  the  bank  officers  to  ap- 
propriate such  dividends  to  the  payment  of  the  tax  on  such 
delinquent  shares. 

rTappan  v.  Bank,  19  Wallace,  490;  Bank  v.  Smith,  65  111.,  44. 


CHAPTER   VII. 


THE  PAYING  TELLER. 


§280    Some  advice  to  bank  clerks  in 
general. 

281.  Neatness  and  order  as  a  requi- 

site. 

282.  Saving  up  for  the  future. 
283    The  position. 

284.  Bond. 

285.  Salary. 

286.  Keeping  the  cash. 

287.  Regarding  combination  locks. 

288.  The  arrangement  of  his  cash. 

289.  Clearing-house  exchanges. 

290.  Business  paper  as  money. 

291.  Representatives  of  money. 

292.  Various  promises  to  pay. 

293.  A  check  defined. 

294.  The  signature. 

295.  The  amount 

296.  A  check  for  "39.67." 

297.  Should  be  addressed  to  some  one. 

298.  A  check  must  be  dated. 

299.  And  payable  on  demand. 

300.  And  payable  to  some  one. 

301.  Days  of  grace. 

302.  When  is  payment  estopped  ? 

303.  Payment  of  checks. 

304.  Is  the  drawer's  account  good  ? 

305.  "  Kiting"  in  checks. 

306.  Is  the  drawer's  signature  genu- 

ine ? 

307.  Signature  slips. 

308.  Is  the  holder  the  owner  ? 

309.  Duty  to  pay  checks. 

310.  Can  a  bank  delay  payment  ? 


£311.  Part  payment. 

312.  Post-dated  checks. 

313.  Partnership  deposits. 

1.  Keeping  the  account. 

2.  How  withdrawn. 

3.  Surviving  partner. 

4.  Deposits  of   old   and   new 

partnerships. 

314.  Checks  of  a  corporation. 

315.  Identification. 

316.  Identifiers. 

317.  Identifying  a  drummer. 

318.  Checks  paid  by  other  than  the 

drawee  bank. 

319.  Receipts    for    the    payment    of 

checks. 

320.  How  checks  are  cancelled. 

321.  Checks  cancelled  by  mistake. 

322.  Certification. 

323.  Entering  certified  checks 

324.  Good  when  properly  indorsed. 

325.  An  illustration. 

326.  Import  of  "good." 

327.  Payment  of  a  forged   certifica- 

tion. 

328.  Certification     is    equivalent    to 

payment. 

329.  Raised  checks. 

330.  An  example  of  a  raised  check. 

331.  Payment  by  mistake. 

332.  Another  example  of  raised  check. 

333.  Methods  of  check  raisers. 

334.  Changing    one  draft   to   corre- 

spond with  another. 


1140 


THE   BUSINESS  OF   BANKING. 


§3340.  Transferring. 

335.  Large    and    small  checks,    and 

how  to  fill  up  the  latter. 

336.  Payment  of   forged  checks  not 

recoverable. 

337.  Cases  v.-herein  payment  may  be 

recovered. 

338.  Loss   occasioned   by   a   lack   of 

vigilance. 

339.  Examination  of  pass  book. 

340.  Looking  for  forgeries. 

341.  Payment  of  forged  indorsement. 

342.  Checks  payable  to  bearer. 

343.  When  is  a  check  due  ? 

344.  Indorsement  for  identification. 

345.  Indorsement  for  deposit. 

346.  Certificate  of  deposit. 

347.  Negotiability   of    certificate    of 

deposit. 

348.  Issue  not  forbidden. 
3^9.  Grace  and  interest. 

Bank  can  take  its  own  certificate. 
Lost  certificate. 

352.  Payment  by  insolvent  bank. 

353.  Uncollected  checks 

354.  Presentation  of  checks  for  pay- 

ment. 

355.  Reasonable  time. 

356.  If  the  drawer  is  not  injured. 

357.  Holder's  excuse  for  delay. 
Indorsed  checks. 
Notice. 

360.  In  what  money  shall  the  paying 

teller  pay? 
t.  Counterfeit. 

2.  Worthless  notes. 

3.  Legal-tender  money. 

361.  Paying  collections. 

362.  Current  funds. 

363.  The  statutes  of  limitation. 

364.  Same. 

365.  A  banker's  lien. 

366.  A  set-off. 

367.  Lien  on  bank  stock. 


350. 

351. 


.358. 
359- 


§368. 
369- 
370. 
3?i- 
372. 
373- 
374- 
375- 
376. 
377- 
378. 
379- 
380. 
381. 
382. 
383- 
384- 
385- 
386. 

387- 
388. 
388^ 

389- 
390. 

391- 
392. 
393- 

394- 
395- 
396. 
397- 

398. 
399- 
400. 
401. 
402. 

403- 
404. 
405. 


Payment  of  a  depositor's  : 

Gold. 

Gold  in  a  bulk. 

Carat. 

Relative  value  of  gold  and  silver. 

The  teller's  specie. 

Light-weight  coins. 

Clipping. 

Splitting  and  sweating. 

The  care  of  gold. 

Gold  shipments. 

How  gold  is  shipped. 

Silver  shipments. 

Test  for  gold  and  silver. 

Coining  silver  dollars. 

The  national  mottoes. 

"M"  on  the  silver  dollar. 

The  dollar  sign. 

Split  coin. 

United  Spates  paper  money. 

National  bank  notes. 

Coin  standing  of  national  bank- 
notes. 

Silver  and  gold  certificates. 

Worn  and  fragmentary  paper 
money. 

Redemption  of  national  bank 
notes. 

Redemption  of  United  States 
paper  currency. 

Redemption  or  exchange  of  sil- 
ver and  minor  coin. 

Transmission  to  the  Treasurer. 

Express  charges. 

Redemption  of  worn  money. 

Detection  of  counterfeit  paper 
money. 

Check  letters. 

All  counterfeits  are  published. 

Inferior  quality  of  counterfeits. 

The  silk  threads. 

Geometrical  lathe  work. 

Branding  worthless  notes. 

Stolen  bank  notes. 

Splitting  a  bank  note. 


THE  PAYING  TELLER.  141 

§  280.  Some  Advice  to  Bank  Clerks  in  General.  Before 
giving  the  detail  of  the  different  clerks'  duties  we  wish  to  offer 
a  few  words  to  bank  clerks  in  general/ 

When  the  bank  closes  its  doors  at  three  o'clock  the  work  but 
begins,  so  do  not  expect  to  go  into  a  bank  and  find  nothing  to 
do.  I  have  seen  young  men  in  banks  hurry  to  get  through 
their  work;  their  main  effort  being  to  get  out.  They  had  no 
thought  of  their  duties,  while  others  will  work  and  "peg  aw  ay" 
until  a  late  hour  doing  what  others  had  left  undone.  If  you 
would  insure  success  in  your  undertaking,  whatever  it  may  be, 
let  nothing  divert  your  attention  from  it. 

A  bank  should  always  "strike"  a  balance  before  the  clerks 
leave  the  bank.  Some  banks  do  not  always  do  so.  If  they 
have  not  sufficient  force  enabling  them  to  do  this,  the  officials 
are  guilty  of  gross  neglect  in  not  procuring  the  requisite  assist- 
ance to  attain  this  object. 

Banks  are  supposed  to  make  no  mistakes,  and  they  should 
make  none.  While  it  is  wrong  for  depositors  to  depend  upon 
the  bank  to  keep  their  books,  yet  they  do,  and  a  depositor  will 
often  run  into  the  bank  to  make  inquiry  regarding  his  balance, 
and  the  books  should  always  be  kept  up  so  you  can  at  any 
time  give  him  a  correct  answer.  Then  the  way  to  succeed  is 
to  be  attentive  to  business  and  put  your  heart  in  the  work. 
The  young  man  that  does  not  will  soon  find  his  place  filled  by 
another.  If  a  man  has  not  attended  to  what  he  commenced, 
it  will  almost  always  be  found  that  he  has  been  attending  to 
something  else.  If  he  expects  to  gain  promotion  he  must 
stick  close  to  business. 

§281.  Neatness  and  Order  as  a  Requisite.  The  duties  of  a 
bank  clerk  have  been  variously  defined.  He  can  make  him- 
self useful  in  many  ways,  one  is  by  keeping  his  desk  in  trim 
when  he  has  nothing  else  to  do.  What  a  contrast  we  find 
sometimes  in  visiting  different  banks.  One  bank  will  be 

R  .^  280  to  §  282,  inclusive,  is  the  gist  of  an  article  written  by  Fred  Ward, 
of  the  Seattle,  (Washington),  National  bank.  Mr.  Ward  is  one  of  the  best 
financiers  and  one  of  the  most  enterprising  bankers  on  the  Pacific  coast. 


142  THE  BUSINESS  OF  BANKING. 

as  neat  and  attractive  as  a  parlor  at  home,  which  should 
always  be  the  case;  the  bank  is  the  home  where  the  young 
man  spends  the  greater  part  of  his  life.  In  other  banks  you 
you  will  find  the  floors  have  not  been  cleaned  for  months,  some- 
times for  years,  cobwebs  in  every  corner,  tobacco  stains,  cigar 
stumps,  blackened  walls,  dusty  corners  and  books,  letters  and 
papers  piled  promiscuously  from  one  end  of  the  counter  to  the 
other,  while  there  is  rubbish  of  all  kinds  scattered  around  the 
room.  No  wonder  the  young  man  wants  to  get  out  of  such  a 
place.  Make  your  office  attractive,  not  for  appearance  alone, 
but  it  would  be  healthier  to  have  your  floors  well  scrubbed, 
the  walls  cleaned,  and  pure  atmosphere  to  breathe  rather  than 
the  filthy  accumulations  of  months  and  years.  Then  an 
attractive  office  and  banking  room  attracts  the  attention  of 
your  patrons,  and  this  attracts  business. 

Keep  your  check  stands  well  supplied  with  good  pens  and 
clean  blotters.  When  a  stranger  comes  in  or  a  person  who  is  not 
familiar  with  the  ways  of  banking,  show  him  where  to  find 
these  little  items  and  make  it  as  easy  for  him  as  possible.  So 
there  is  always  opportunity  for  doing  in  a  bank. 

§  282.  Save  up  a  Part  of  Your  Salary.  It  may  seem 
very  discouraging  sometimes  to  work  along  month  in  and 
month  out  on  a  salary,  but  if  you  are  not  born  rich  think  if 
there  is  any  way  out  of  it.  You  must  work,  and  if  you  do 
your  work  well  you  stand  a  better  chance  of  receiving  a 
reward  for  it  than  the  young  man  who  does  not.  The  reward 
does  not  always  come  when  we  think  we  should  have  it,  but 
it  will  come  sooner  or  later,  and  before  undertaking  any  enter- 
prise or  starting  out  for  yourself,  if  you  have  a  good  position 
and  are  treated  well,  stick  to  it. 

But  it  would  be  well  for  you  to  lay  aside  something,  and  it 
is  only  by  saving  that  you  can  expect  to  become  rich.  A  clerk 
receiving  six  hundred  or  a  thousand  dollars  salary  a  year  does 
not,  unfortunately,  consider  himself  poor,  and  so  he  lays  by  no 
money.  It  is  a  mistake.  Let  him  consider  that  he  will  one 


THE  PAYING  TELLER.  143 

day  be  sick  or  disabled,  or  out  of  work,  or  marry,  and  he  will 
then  realize  how  poor  he  really  is.  A  young  man  must  look  at 
himself  as  a  married  man  and  the  father  of  a  large  prospective 
family  and  provide  accordingly. 

Money  lays  eggs  faster  than  hens.  They  who  have  it  know 
how  prolific  it  is.  Above  all  things,  then,  a  poor  man  should 
seek  to  become  a  capitalist.  It  his  income  is  six  hundred  he 
must  live  on  four  hundred  and  lay  by  two  hundred.  What  if 
his  income  is  but  four  hundred  ?  He  must  live  on  three  hun- 
dred and  lay  by  one  hundred  a  year.  If  but  three  hundred, 
then  he  must  lay  by  at  least  fifty.  This  is  what  the  rich  man 
tells  us. 

§  283.  The  Position.  The  paying  teller  ranks  next  to  the 
cashier.  He  is  often  called  the  first  teller,  and  is  one  of  the 
most  important  officials  of  a  well  regulated  bank.  When  the 
cashier  is  promoted  the  paying  teller  usually  succeeds  to  his 
place,  though  many  se^m  to  think  that  the  general  book- 
keeper and  the  corresponding  clerk  ought  to  have  an  equally 
good  chance  for  the  office. 

As  indicated  by  his  title,  he  is  the  disbursing  officer  of  the 
bank.  He  is,  in  truth,  the  cashier  of  the  bank,  for  he  has 
under  his  control  the  cash  of  the  bank  and  pays  all  demands 
Dn  it  for  money.  In  England  he  is  called  the  paying  cashier. 

The  position  is  one  which  requires  a  man  well  versed  in  the 
business  of  banking.  He  should  be  keen  and  skillful,  posess- 
ing  all  the  requisites  of  a  thorough  financier.  He  ought  to  be 
quick  and  accurate  at  figures;  quick  and  accurate  at  counting 
money  and  making  change;  a  rapid  and  legible  writer;  possess- 
ed of  quick  perception  in  the  recognition  of  faces,  names 
and  signatures;  self-reliant,  with  excellent  judgment;  patient, 
with  plenty  of  good  nature. 

The  road  to  the  position  of  paying  teller  is  up  a  long  ladder 
of  apprenticeship.  It  is  the  only  way.  Like  all  other  posi- 
tions of  honor  and  trust,  it  requires  unceasing  toil  and  indom- 
itable energy  to  reach  it;  and  still  more  and  harder  toil  and 


144  THE  BUSINESS  OF  BANKING. 

energy  to  carry  it  to  a  higher  plane  of  progress  in  the  rushing 
tide  of  the  world's  advancement. 

§  284.  Bond.  The  paying  teller  must  give  bonds  for  the 
faithful  performance  of  his  duties,  in  an  amount  next  to  that 
of  the  cashier.  The  amount  of  such  bonds  is  usually  from 
five  thousand  to  ten  thousand  dollars.  The  other  clerks  usu- 
ally give  bonds  also,  in  amounts  according  to  their  respective 
positions.  These  bonds  do  not  cover  losses  by  misjudgment  or 
neglect,  but  only  fraudulent  transactions.  The  regulations 
regarding  the  paying  teller's  bonds  are  similar  to  those  of  the 
cashier. 

§  285.  Salary.  The  fact  that  the  paying  teller  receives  a 
salary  second  only  to  that  of  the  cashier  is  a  sure  indication 
of  his  rank  in  the  line  of  promotion.  His  salary  is  larger  than 
that  of  any  other  clerk,  and  the  general  bookkeeper's  is  next. 
His  salary  is  larger  because  he  is  intrusted  with  more  funds 
and  his  responsibility  in  scrutinizing  signatures  and  paying 
money  is.  very  great. 

§  286.  Keeping  the  Cash.  The  paying  teller  is  nominally 
responsible  for  every  dollar  of  the  bank's  cash,  though  this  re- 
sponsibility is  not  in  all  cases  and  under  all  circumstances 
fully  enforced. b 

He  has  the  custody  and  is  charged  with  the  disbursement 
of  the  bank's  funds.  In  some  of  the  large  banks  he  may 
have  in  his  keeping  several  millions  of  dollars,  but  at  all  times 
and  in  all  banks  he  has  control  of  most  of  the  money. 

In  large  banks  the  responsibility  of  caring  for  so  much 
money  is  often  considered  too  great  for  one  man,  and  the  vault 
is  divided  into  compartments.  Of  these  the  paying  teller  has 
two  or  three,  the  cashier  one,  and  the  receiving  teller  one; 
sometimes  the  note  teller,  the  discount  clerk,  the  collection 
clerk,  and  the  loan  clerk,  have  one  each.  In  a  bank  where  the 
paying  teller  has  three  compartments,  two  of  these  have  two 
locks  each,  and  the  other  only  one.  In  two  of  these  compart- 

b  Patten  on  Banking,  p.  12. 


THE  PAYING  TELLER.  145 

ments  the  combination  of  one  lock  is  known  only  to  the  cashier 
and  of  the  other  only  to  the  paying  teller.  In  these  two  com- 
partments is  kept  the  greater  part  of  the  bank's  money,  and 
they  cannot  be  opened  without  the  knowledge  of  both  paying 
teller  and  cashier.  In  the  third  compartment,  which  has  only 
one  lock,  the  paying  teller  keeps  his  balance  of  cash,  which, 
changing  from  day  to  day,  must  necessarily  be  under  his  con- 
trol. The  cashier  knows  every  combination,  excepting  those 
of  the  paying  teller. 

Except  when  the  paying  teller  is  sick,  or  an  investigation  is 
to  be  made,  or  fraud  is  suspected,  no  one  ever  invades  his 
compartments  of  cash.  If  the  cashier  was  accustomed  to 
going  to  the  cash  and  a  loss  should  occur,  it  would  be  very 
difficult  to  trace.  The  paying  teller  has  sole  charge  of  his 
compartments,  and  he  alone  is  responsible  when  a  loss  occurs. 

Upon  reaching  the  bank  at  9  o'clock,  he  unlocks  his  com- 
partment and  the  porter  assists,  if  necessary,  in  carrying  to 
his  desk  the  money  which  is  likely  to  be  needed  for  the  day's 
business.  He  then  locks  his  compartment  and  returns  to  his 
desk. 

§  287,  Some  Suggestions  Regarding  Combination  Locks. 
A  few  hints  may  be  given  here  which  will  add  security  to  the 
business  and  save  much  time  for  those  who  have  combination 
locks  to  attend  to.  The  slots  in  all  the  tumblers  must  be  in  line 
to  open  a  combination  lock.  If  one  of  them  is  out  of  place,  the 
safe  is  locked  until  it  is  replaced.  Many  use  the  "day  lock"  which 
is  to  shut  the  door,  turn  the  dial  a  little  to  the  right  or  left  so 
as  to  fasten  the  bolts.  To  unlock  it,  turn  the  dial  back  un- 
til it  stops.  The  "day  lock"  gives  a  thief  one  chance  in  two 
to  unlock  the  safe.  Now  if  the  dial  is  turned  a  short  distance 
beyond  this,  so  that  if  turned  either  way  continuously,  it  will 
lock  the  safe  completely,  but  yet,  with  a  small  amount  of  pro- 
per turning  and  one  or  two  reverses  the  one  tumbler  that  is 
out  of  place  will  come  into  line  and  the  safe  be  unlocked  in  a 
few  seconds,  and  with  much  less  time  and  trouble  than  to  work 


146  THE  BUSINESS  OF  BANKING. 

the  whole  combination.  A  little  practice  will  enable  any  one 
to  do  this — if  not,  write  to  the  maker  of  your  safe,  giving  only 
the  last  combination  number,  and  he  will  send  you  the  required 
information. 

§  288.  Arrangement  of  His  Cash.  The  paying  teller  has 
a  money  drawer  which,  to  facilitate  payment,  is  divided  into 
sections,  which  contain  bills  of  different  denominations. 

When  counting  bills  he  packages  them  usually  with  fifty 
bills  to  the  package.  The  number  of  bills  to  a  package, 
however,  varies  to  suit  his  convenience.  These  packages  are 
properly  labeled,  and  if  the  amount  of  a  package  is  to  be 
paid  out  it  is  not  recounted.  Coin  is  also  packaged  by  rolling 
in  paper  and  labeling.  Some  of  the  packages  must,  of  course, 
be  broken  during  the  day  for  small  payments.  Bills  must 
never  be  slipped  out,  leaving  the  label  around  the  rest  of  the 
package.  Break  the  label. 

The  paying  teller  pays  out  all  the  money.  If  the  cashier 
has  occasion  to  pay  he  must  do  so  by  a  cashier's  check,  and 
the  first  teller  pays  the  money.  Having  charge  of  the  cash, 
as  he  does,  he  receives,  from  the  other  tellers  and  clerks,  at 
night,  the  amount  received  by  them  during  the  day.  If  they 
have  a  compartment  in  the  vault,  they  do  not  turn  over  all 
their  cash  to  him,  but  reserve  enough  to  meet  the  requirements 
of  change,  etc.,  the  next  day. 

§  289.  Clearing-house  Exchanges.  All  the  exchanges 
sent  to  the  Clearing-house  must  appear  in  the  first  teller's  ac- 
counts. These  exchanges  include  all  checks  drawn  on  other 
banks,  which  have  been  paid  to,  or  deposited  by  our  customers. 
We  pay  the  checks  on  other  banks  which  our  dealers  present 
as  a  matter  of  accommodation  and  then  turn  them  over  to 
the  drawee  bank  at  the  Clearing-house.  A  full  explanation  of 
the  workings  of  a  Clearing-house  will  be  found  in  another 
chapter. 

§  290.     Business  Paper  as  Money.0     In  order  to  fully  un- 

°From  §  290  to  §  302,  inclusive,  is  the  gist  of  a  lecture  before  the  Institute  of 
Accounts,  at  New  York,  Dec.  10,  1890,  by  S.  R.  Hopkins. 


THE  PAYING  TELLER.  147 

derstand  the  nature  of  the  paying  teller's  duties,  we  deem  it 
apropos  to  consider  the  use  of  business  paper  as  money,  and 
the  nature  and  proper  treatment  of  checks,  before  giving  the 
law  regarding  them  and  their  disposition  by  the  first  teller. 

A  few  weeks  ago  I  was  standing  in  one  of  the  large  banks 
in  this  city,  and  I  saw  a  long  line  drawn  up  in  front  of  the 
receiving  teller's  window.  Each  of  the  persons  in  that  line 
carried  with  him  the  ordinary  pass  book  and  deposit  slip.  All 
were  awaiting  their  turn  to  get  an  opportunity  to  transact 
business  with  that  officer.  But  there  was  one  person  who 
particularly  attracted  my  attention — not  the  person,  but  what 
he  had  in  his  hand;  for  he  had  a  peculiar  kind  of  deposit 
ticket.  It  was  of  the  ordinary  width — about  3  or  3^  inches 
wide— but  it  was  between  three  and  four  feet  long.  My  atten- 
tion being  called  to  it,  I  spoke  to  the  cashier  and  asked  if  he 
received  many  such  tickets.  He  said  that  was  one  of  those  pe- 
culiar characters  and  the  house  was  peculiar  that  it  came  from, 
and  that  it  was  "sweetness  long  drawn  out."  "Now,"  the 
cashier  continued,  "that  man  whom  you  see  with  the  deposit 
ticket  longer  than  you  could  reach  both  ways  with  both  arms, 
filled  in  with  several  hundred  items,  has  not  brought  $i  to 
this  bank.  There  are  probably  $2,000  or  $3,000  to  be  cred- 
ited to  that  house,  but  not  $i  has  been  received  in  money." 

It  is  not  usual  in  banks  to  see  a  thing  of  that  kind.  If  we 
take  notice  and  observe  carefully  all  the  deposits  made  at  all 
the  banks  in  this  city  on  any  single  day,  we  will  find  in  every 
$100  about  $5  in  money  and  $95  in  paper. 

We  will  notice,  if  we  observe  the  last  report  of  the 
Comptroller  of  the  Currency  upon  the  condition  of  the  national 
banks,  that  on  a  certain  day  this  last  year  the  Comptroller  of 
the  Currency  called  for  a  statement  of  the  banks.  The  state- 
ment was  made,  and  a  computation  has  been  compiled  show- 
ing that  on  that  day,  of  all  the  millions  that  were  deposited  in 
the  United  States  national  banks,  92  per  cent,  of  what  was 
credited  up  to  the  tellers'  accounts  was  for  paper,  and  about  8 
per  cent,  for  cash — real  money. 


148  THE  BUSINESS  OF  BANKING 

£  291.  Representatives  of  Money.  When  I  speak  of 
business  paper  as  money  I  do  not  refer  to  representatives  of 
money.  Bills,  greenbacks,  gold  and  silver  certificates  and 
national  bank  notes  are  not  money,  only  they  are  called 
money.  They  are  mere  representatives  of 'money.  The  law 
says  that  a  dollar  is  412^  grains  ot  silver,  nine-tenths  fine,  or 
25  4-5  grains  of  gold,  nine-tenths  fine.  Now  we  know  that 
a  piece  of  paper  can  be  neither  of  these,  consequently  is  not 
a  dollar.  Even  the  government  does  not  consider  them 
money.  On  the  bill  we  see,  "The  United  States  will  pay  the 
bearer  so  many  dollars."  These  papers  are  representatives 
of  money,  and  are  generally  taken  as  such.  Business  paper, 
as  we  wish  to  treat  it,  is  that  class  of  documents  which  custom 
and  practice  have  brought  to  represent  money,  but  which  is 
not  called  money. 

Business  paper  as  monoy  is  that  instrument  drawn  against 
funds  held  by  the  drawee  for  the  purpose  of  paying  an  order 
The  simplest  form  is  the  post-office  money  order,  or  postal 
note.  It  corresponds  to  our  fule, 

§  292.  Various  Promises  to  Pay.  Express  money  orders, 
bank  drafts,  checks  or  bills  of  exchange,  of  certain  kinds,  are 
also  of  that  character.  Depositors'  or  tellers'  checks,  cashiers' 
checks  and  certified  checks  also  belong  to  this  category.  Other 
paper  is  sometimes  listed  as  cash  items  by  banks,  but  they 
are  not  business  paper  as  money.  I  have  seen  tellers  take 
money  out  of  the  drawer  and  drop  I.  O.  U.'s  in  and  carry  them 
as  money.  It  is  simply  a  promise  to  pay,  and  I  want  to  draw 
a  distinction  between  business  paper  as  money  and  a  promise 
to  pay.  A  memorandum  check  is  an  evidence  of  debt,  but  it 
is  not  a  check  because  it  is  not  payable  on  demand.  It  does 
not  agree  with  a  proper  definition  of  a  check.  Even  a  bank's 
certificate  of  deposit  is  not  a  representative  of  mon^y,  for  it 
does  not  meet  the  requirements  of  what  business  paper 
should  be. 

§  293.  A  Check  Defined.  Now  we  come  to  checks.  1  will 
give  the  definition  of  a  very  learned  judge  of  what  a  check 


THE  PAYING  TELLER.  149 

is.  He  says  it  is  an  unconditional  order  on  a  bank  or  banker 
to  pay  a  specified  sum  of  money  to  a  person  named,  or  to  his 
order,  on  demand.  Now  we  have  arrived  at  a  place  where  we 
can  examine  one  of  the  most  important  elements  that  enter 
into  all  business  transactions  at  the  present  day — checks. 
These  are  of  the  greatest  importance.  They  perform  the 
greatest  amount  of  service — far  more  service  than  all  the 
money  in  the  country. 

The  essentials  of  a  bank  check  are: 

First  it  must  bear  the  signature  of  the  maker.  It  must  au- 
thorize the  payment  of  a  sum  definitely  stated.  It  must 
be  addressed  to  a  bank  or  banker  on  which  it  is  drawn.  It 
must  be  dated.  The  date  may  be  before,  on  or  after  it  is 
issued.  It  must  be  payable  on  demand,  and  it  is  considered 
to  be  payable  on  demand,  although  the  words  "on  demand" 
are  not  stated.  It  must  also  indicate  a  payee. 

What  is  the  purpose  of  a  check  ?  We  all  speak  of  a  check. 
What  is  it  for  ?  It  is  an  instrument  by  which  a  depositor  in 
a  bank  seeks  to  withdraw  the  funds,  or  some  part  of  them, 
on  an  order.  This  order  is  a  check. 

§  294.  The  Signature.  Now,  the  first  consideration  is  the 
signature,  and  the  law  comes  into  effect  there  for  various  rea- 
sons. People  have  drawn  checks  in  very  many  different 
ways.  We  have  in  general  usage  blank  forms,  which  are 
issued  by  banks  to  their  customers.  There  are  many  other 
printed  forms  which  have  been  used  from  time  to  time,  as 
for  example  here  is  one: 


/.  T,  Smith  directs  the  First  National 
Bank  to  pay  John  Smith  fifty  dollars 
($50.} 


There  was  no  signature.  The  bank  upon  which  this  check 
was  presented  refused  to  pay  it,  claiming  that  it  was  not  a 
check,  as  it  was  not  signed.  It  caused  this  Mr.  Smith  a  great 
deal  of  inconvenience,  injured  his  credit  and  spoiled  valuable 
trade.  The  check  was  brought  back  to  him,  and  he  sued  the 


150  THE  BUSINESS  OF  BANKING. 

bank  for  not  paying  it.  What  did  the  court  say  ?  It  said 
that  I.  T.  Smith  was  his  signature;  consequently  the  bank 
had  to  suffer  all  the  loss,  because  the  teller  of  the  bank  failed 
to  appreciate  that  the  name,  "  I.  T.  Smith, "  written  in  the 
check,  was  his  signature. 

In  another  case  this  form  was  used: 


Mr.  G.  Rood,  attorney-in-fact  for  T. 
Brown,  requests  the  bank  to  pay  Afr.  H. 
Larson  twenty  dollars. 


This,  in  law,  has  been  held  to  be  a  veritable  check.  Mr. 
Rood,  as  attorney,  had  authority  to  sign  for  Mr.  Brown,  and 
it  was  considered  a  good  check. 

A  man  signs  a  check  and  he  says  " agent;"  or  he  makes  his 
signature  as  "  trustee"  or  something  of  the  kind,  and  these 
things  have  gone  into  litigation,  and  the  result  has  come  like 
this:  A  person  must  follow  one  rule  in  signing  a  check. 
He  must  make  his  signature  as  he  leaves  it  with  the  bank, 
showing  what  his  real  signature  is  that  he  will  use.  This 
does  not  always  hold  good,  however.  A  bank  is  not  always 
justified  in  refusing  payment  of  a  check  by  strict  comparison 
of  the  signature;  but  if  a  person  writes  his  name  disguising 
his  signature,  although  he  may  sign  it  himself,  and  it  is  clearly 
not  the  signature  he  has  left  at  the  bank,  the  latter  has  a  right 
to  refuse  to  pay  it  long  enough  to  ascertain  if  it  is  his  signa- 
ture, without  fear  of  damage. 

A  very  important  case  was  tried  in  a  western  town,  where 
there  was  a  corporation.  The  corporation  had  deposited 
money  in  a  bank.  Three  directors  signed  a  check,  each  sign- 
ing as  a  director,  and  then  the  secretary  signed  as  secretary. 
The  bank  refused  to  pay,  because  the  check  did  not  contain 
the  name  of  the  corporation,  as  the  money  was  deposited  in 
the  name  of  the  corporation.  In  this  case  the  court  decided 
against  the  bank,  for  the  reason  that  this  was  an  unusual  sig- 
nature. The  three  persons  signing  as  directors  and  the  one 
as.  secretary  of  the  company,  was  enough  to  put  the  teller  on 


THE  PAYING  TELLER.  151 

his  guard  and  cause  him  to  make  inquiry  to  ascertain  if  that 
was  the  signature  of  the  corporation.  The  loss  fell  on  the 
bank. 

§  295.  The  Amount.  In  the  next  place,  the  sum  must  be 
specified  with  such  precision  that  the  teller  of  the  bank  may 
know  with  certainty  what  it  is.  A  foreigner  from  the  other  side 
came  over  to  this  country  and  deposited  his  money  in  a  bank. 
He  thoughtlessly  drew  a  check  and  sent  it  to  the  bank,  he 
being  in  another  city,  but  instead  of  drawing  it  for  dollars,  as 
he  should  have  done,  he  drew  it  for  pounds.  It  was  a  very 
important  thing  that  he  should  have  that  check  paid,  and 
neglect  so  to  do  was  a  serious  loss.  When  the  check  was  pre- 
sented for  so  many  pounds  at  the  bank,  the  teller  dishonored 
it,  refusing  to  pay  it.  The  man  brought  suit  against  the  bank 
and  the  courts  in  this  case  decided  that  that  was  not  a  check, 
and  thereby  established  a  rule  which  is  the  generally  accepted 
rule  at  the  present  time.  That  is,  that  to  be  a  perfect  check 
it  must  not  only  specify  the  amount  with  precision,  but  that 
amount  must  be  expressed  in  the  currency  of  the  country. 
The  cashier  was  right  in  declining  to  pay  the  check  in  this  case. 
He  was  right,  because  in  the  first  place  it  was  not  a  sum  cer- 
tain. It  called  for  pounds,  and  while  the  teller  could  have  cal- 
culated the  amount  from  the  rate  of  exchange  that  day,  the 
check  did  not  say  a  sum  certain.  The  teller  had  nothing  in 
the  shape  qf  pounds  to  pay  with,  and  he  could  not  comply 
with  the  requirements  of  the  law. 

§  296.  A  Check  for  "  39.67. "  The  check  read  "39.67," 
and  the  teller  refused  to  pay  it.  The  court  decided  that  rea- 
sonable judgment  on  the  part  of  the  teller  could  not  have 
failed  to  read  that  any  other  than  $39.67.  The  directions 
were  clear,  and  the  figures  plain.  The  signature  was  correct, 
and  reasonable  judgment  should  have  told  the  teller  that  it 
was  United  States  money  that  the  check  called  for,  and  the 
bank  had  to  pay  large  damages. 

In  another  case  the  check  was  all  right  but  the  amount 
read  "twenty-one  and  thirty-six  dollars"  ;  but  the  figures  in 


152  THE  BUSINESS  OF  BANKING 

the  margin  were  $2136.00.  The  teller  tendered  the  holder 
$21.36.  The  court  decided  that  the  word  "and"  was  a  sepa- 
ratrix  and  that  it  meant  $21.36,  consequently  the  teller  was 
right  in  tendering  that  amount.  If  the  drawer  intended  to 
write  the  check  for  $2 136.00  he  should  have  written  "twenty- 
one,  thirty-six  and  no-ioo  dollars."  Even  then  the  omission 
of  the  word  "hundred"  would  be  inexcusable.  A  teller  is 
often  at  a  loss  to  know  what  careless  check  drawers  mean. 

§  297  A  Check  should  be  Addressed  to  Some  One.  A 
check  must  be  addressed  to  some  person.  If  not  addressed, 
and  taken  to  a  bank  and  paid  by  the  teller,  it  is  a  gratuitous 
payment.  It  must  be  drawn  on  the  bank  or  banker,  and  must 
be  on  a  bank  that  is  not  closed,  or  it  is  not  a  check. 

In  a  case  in  Milwaukee  the  name  printed  on  the  blank 
check  was  "  First  National  Bank."  The  drawer  ran  a  pencil 
line  through  the  words  and  wrote  upon  them  "J.  O.  Tyler," 
Tyler  refused  to  pay  it  when  presented,  claiming  that  it  was 
on  a  Milwaukee  bank;  but  the  court  held  that  the  fact  that 
the  pencil  mark  was  drawn  across  the  words  "First  National'' 
was  evidence  from  the  circumstances  that  the  man  meant  to 
draw  it  on  "J.  O,  Tyler";  consequently  J.  O.  Tyler  was  held 
responsible  for  the  non-payment  of  the  check  when  it  was 
presented. 

§  298.  A  Check  must  be  Dated.  The  next  consideration 
or  essential  is  that  a  check  must  be  dated.  A  check  is  said 
to  be  due  on  the  day  of  its  date.  The  date  may  be  before  it 
is  issued,  on  the  day  it  is  issued,  or  some  other  day.  If  it  is 
dated  some  days  betore  it  is  issued,  it  is  called  a  "posf'-dated  | 
check;  but  the  date  must  be  specifically  stated,  because  the 
court  says,  "A  check  is  payable  on  the  day  of  its  date,"  and 
if  it  is  not  dated  it  is  not  payable — there  is  no  time  to  make 
demand,  and  it  never  becomes  due.  It  is  due  when  dated. 
If  a  person  has  neglected  to  put  the  date  on  the  check,  the 
bank  has  a  perfect  right  to  refuse  payment  of  a  check  of  that 
kind.  But  a  check  of  that  kind  may  be  paid  by  a  bank.  If 


THE  PAYING  TELLER.  153 

the  check  was  drawn  in  good  faith  and  went  to  the  depositor's 
benefit,  the  fact  that  he  did  not  put  the  date  on  it  could  not 
be  taken  advantage  of.  Checks  dated  on  legal  holidays  or  on 
Sundays  are  good.  The  law  says  a  check  is  due  on  the  day 
of  its  date.  If  for  any  reason  a  check  cannot  be  paid  on  the 
day  of  its  date,  it  must  be  presented  the  first  business  day 
following,  or  that  the  bank  is  open  for  the  payment  of  checks. 

§  299.  A  Check  must  be  Payable  on  Demand.  One  of 
the  essentials  of  a  check  is  that  it  is  always  payable  on  demand. 
If  it  is  payable  in  any  other  way  it  is  not  a  check,  although  it 
may  have  all  the  other  features  connected  with  it.  If  it  is 
payable  some  other  time  than  the  day  it  is  dated  it  is  not  a 
check,  for  a  check  is  payable  on  demand. 

§  300.  And  Payable  to  Some  One.  Some  one  must  be 
named  in  the  check  to  pay  it  to.  A  bank  has  no  right  to  pay 
it  to  a  blank.  There  must  be  something  or  somebody  named 
in  the  check.  When  a  man  writes  a  number  of  meaningless 
words  in  a  check  the  law  construes  them  as  meaning  "Pay  to 
bearer.' '  So  all  checks  drawn  that  way  have  a  payee,  it  being 
in  that  case  "bearer."  Checks  may  contain  many  things  that 
are  not  specified.  A  check  may  say  in  it  '  'Pay  to  So-and-So, 
so  many  dollars  for  value  received."  It  is  a  check  just  the 
same.  A  person  has  written  a  check  which  has  on  it  the 
word  "Original,"  or  another  may  have  written  on  it  the  words 
"First  Unpaid."  This  would  very  nearly  appear  to  make  it  a 
foreign  bill  of  exchange,  but  it  was  not,  for  it  had  all  the  char- 
acteristics of  the  check  with  that  exception,  and  the  courts 
held  that  it  was  a  check. 

The  law  presumes  that  every  check  is  drawn  against  a 
deposit  of  money.  If  payable  in  another  state  it  does  not 
change  the  character  of  it. 

In  coming  to  this  I  want  simply  to  quote  what  Chief  Justice 
Shaw  gave  in  a  very  important  case.  In  describing  a  check 
he  said:  "A  check  is  an  order  to  pay  the  holder  a  sum  of 
money  at  a  bank  on  presentment  of  the  check  and  demand  of 


154  THE  BUSINESS  OF  BANKING. 

the  money.  No  previous  notice  is  required — no  acceptance 
is  expected  or  necessary.  It  has  no  days  of  grace;  it  is  paya- 
ble on  presentment  and  not  before.  A  notice  to  a  bank  by  a 
person  holding  a  check  does  not  bind  the  bank  if  he  does  not 
present  it."  This  was  in  an  important  case  where  a  person 
expecting  a  check  went  to  the  bank,  notified  the  paying  teller 
of  the  bank  that  he  held  this  person's  check,  and  he  wanted 
the  paying  teller  to  withhold  enough  of  the  funds  to  pay  the 
check  until  he  got  the  check.  The  teller  had  every  reason  to 
believe  that  the  man  would  get  the  check,  but  he  refused  to 
do  as  requested,  and  the  court  sustained  him. 

§  301.  Days  of  Grace.  There  has  been  a  great  deal  of 
conflict  in  decisions  in  regard  to  the  question  of  grace  on 
checks.  One  state  in  the  Union  has  decided  that  a  check 
drawn,  saying  "90  days  after  date,  pay  So-and-So  so  much 
money, "is  a  check.  This  was  in  a  decision  by  the  Supreme 
Court  of  Rhode  Island.  A  little  conflict  arose  as  to  whether 
it  would  have  grace.  The  general  trend  of  all  decisions  that 
have  been  given  are  to  the  effect,  and  it  is  generally  held  in 
all  the  courts  at  the  present  time,  that  a  check  must  be  due 
on  the  day  it  is  dated.  If  a  bank  pays  a  check  dated  ahead 
it  does  so  at  its  own  risk.  The  maker  has  a  right  to  all  the 
funds  he  has  in  that  bank  until  the  day  of  the  check  arrives. 
He  may  date  it  5,  10  or  30  days  ahead,  and  although  the 
bank  may  know  that  such  a  check  is  out  it  must  honor  up  to 
date  all  checks  which  may  be  presented,  even  though  by  so 
doing  there  are  not  sufficient  funds  to  meet  the  post-dated 
check. 

§  302.  When  is  Payment  Estopped.  The  question 
whether  a  person  can  countermand  payment  of  a  check  after 
it  has  passed  out  of  his  hands  is  one  which  would  require 
considerable  discussion  to  explain.  The  money  is  the  depos- 
itor's until  the  time  of  the  presentment  of  the  check,  and  if  he 
desires  he  may  countermand  the  check  or  stop  payment. 
There  might  be  circumstances,  however,  where  a  person 


THE  PAYING  TELLER.  155 

would  not  be  justified  in  countermanding  and  could  not  hoid 
the  bank  responsible  if  it  paid  the  check. 

A  man  had  a  check  and  he  went  to  the  bank  and  gave  it  to 
the  paying  teller  to  have  it  certified.  The  teller  took  it,  stamped 
upon  it  the  certification  of  the  bank,  and  was  about  to  hand 
it  back  to  the  individual  presenting  it,  when  the  man  who 
drew  the  check  appeared  at  the  window  and  said,  "I  counter- 
mand that  check."  The  teller  said,  "  You  are  too  late;  I  have 
certified  it  already.  I  have  charged  your  account."  "Well," 
said  the  man,  "I  countermand  it."  But  the  teller  believed  he 
was  right  and  issued  the  check  to  the  man  presenting  it  for 
certification. 

When  they  made  up  the  account  of  the  man  who  drew  the 
check,  the  latter,  which  was  for  a  large  amount,  was  charged 
to  him.  This  check  practically  exhausted  the  funds  standing 
to  the  credit  of  this  man,  but  he  paid  no  attention  to  the 
matter  and  drew  another  check  against  the  bank  and  the 
bank  refused  to  pay  it.  The  bank  was  sued,  and  the  court 
said,  in  effect,  that  a  check  is  not  issued  until  passed  out  of  the 
hands  of  the  person  who  makes  it.  Taking  this  view  of  the 
case,  although  the  teller  had  stamped  the  check— had  charged 
it  up — he  had  not  certified  it  because  he  had  not  given  it  back 
to  the  person  presenting  the  same.  He  had  notice  from  the 
maker  to  countermand  it,  or  stop  payment,  therefore  the 
bank  lost  the  amount  of  the  check. 

§  303.  Payment  of  Checks.  The  second,  or  receiving, 
teller  may  pay  checks  by  taking  them  as  deposits,  and  the 
messenger  may  take  them,  when  not  at  the  bank,  in  payment 
of  the  notes  he  may  be  collecting,  but  these  are  all  turned 
over  to  the  first,  or  paying,  teller  at  the  close  of  the  day,  so  it 
may  be  said  that  he  pays  all  the  checks  which  come  to  the 
bank.  Every  transaction  relating  to  cash  must  drift  to  the 
first  teller  in  one  shape  or  another,  in  order  to  have  some 
gathering  point  from  which  to  ascertain  the  real  condition  of 
the  bank. 


156  THE  BUSINESS  OF  BANKING. 

In  paying  a  check  there  are  three  things  that  should  be 
considered:  first,  is  the  account  of  the  drawer  good  for  the 
amount  of  the  check;  second,  is  the  drawer's  signature 
genuine  ;  and  third,  is  the  person  presenting  it  the  proper 
person  to  receive  the  money  ? 

§  304.  The  first  of  these  questions  is  very  important  to 
all  safe  banking.  By  long  practice  he  is  enabled  to  gain  a 
good  general  knowledge  of  the  average  balances  of  his  cus- 
tomers. But  there  are  a  number  of  little  accounts  whose 
balances  it  is  impossible  to  keep  the  run  of,  except  by  looking 
up  the  account,  on  the  dealer's  balance  book,  for  every  check 
paid,  and  thus  ascertaining  for  a  certainty  before  paying  a 
cent.  These  little  accounts  are  the  bane  of  the  paying  teller. 

Of  course  he  soon  learns  whom  he  must  watch,  to  prevent 
an  overdraft,  though  after  all  his  vigilance  one  may  be  perpe- 
trated. An  overdraft  consists  of  paying  checks  for  more  than 
the  drawer  has  on  deposit.  As  already  stated,  to  permit 
overdrafts  is  inconsistent  with  safe  banking,  for  it  is  to  loan 
money  without  interest  and  without  security.  Eternal  vigil- 
ance will  reduce  the  amount  of  overdrafts  to  the  minimum, 
though,  after  all  the  care,  they  may  be  perpetrated.  The 
runner  takes  in  checks  (or  notes  when  not  in  the  bank,  the 
second  teller  takes  them  on  deposit,  and  the  first  teller  pays 
them  over  the  counter.  Should  a  depositor  have  $1.000  to 
his  balance,  he  might  draw  three  checks  for  $1,000  each,  and 
give  one  to  the  runner,  or  third  teller,  for  a  note,  one  to  a 
creditor  who  would  deposit  it  with  the  second  teller,  and  him- 
self cash  the  other  at  the  first  teller's  window,  and  thus 
overdraw  his  account  $2,000.  While  this  is  not  liable  to 
happen,  yet  it  is  possible. 

By  careful  examination  of  the  checks  and  deposits  of  ai 
dealer  it  is  easy  to  judge  whether  they  are  the  returns  of  his 
business,  or  are  transfers  between  different  persons.  It  is  easy 
to  discover  whether  or  not  a  man  uses  his  credit  to  excess, 
and  to  get  information  regarding  his  personal  habits  and  his 
character. 


THE  PAYING  TELLER.  157 

§305.  "Kiting."  Though  " kiting"  is  illegal,  it  maybe 
successfully  practiced.  A  person  with  an  account  in  bank  A, 
exchanges  checks  with  another  person  who  keeps  his  money  in 
bank  B ;  they  deposit  the  checks  in  their  respective  banks, 
and  subsequently,  but  before  the  checks  have  had  time  to  go 
through  the  Clearing-house,  they  draw  money  out  on  their 
own  checks.  When  a  check  is  thus  deposited,  if  the  receiving 
fteller  should  suspect  anything  wrong  with  it,  he  would  inform 
the  paying  teller  of  the  fact,  who  would  refuse  to  pay  the 
depositor's  check  when  it  was  subsequently  presented  through 
the  Clearing-house.  Such  a  thing  would  not  probably  occur 
with  a  new  depositor,  for  the  bank  would  not  pay  out  money 
when  it  had  received  none,  but  an  old  depositor  might  do 
such  a  thing.  This  method  of  obtaining  money  is  termed 
"  kiting,"  and  the  persons  who  engage  in  it  are  considered 
dangerous  to  a  bank.  When  a  person  is  detected  in  "  kiting" 
his  account  is  closed,  and  the  bank  refuses  to  have  further 
dealings  with  him. 

§  306.  The  second  question:  Is  the  drawer's  signature 
genuine  ?  takes  in  the  forgery  problem.  Forgery  is  one  of 
the  terrors  of  banking  and  the  teller  must  be  always  on  the 
alert.  Many  devices  have  been  invented  to  prevent  forgery. 
Various  kinds  of  paper  and  various  colored  inks  have  been 
tried  with  various  success.  In  printing  paper  money,  green 
ink  was  introduced  to  render  forgery  more  difficult,  and  it  has 
proven  quite  effective.  Private  marks  in  signatures  have 
been  used  with  some  success,  but  if  a  forger  discovers  the 
private  mark  and  succeeds  in  counterfeiting  it,  the  teller  is 
more  likely  to  be  deceived  than  if  no  mark  was  used. 

§  307.  Signature  Slips.  One  of  the  precautions  employed 
by  banks  is  that  of  having  the  depositors  write  their  names 
in  a  signature  book.  A  great  many  banks  have  discarded  the 
signature  book  and  are  using  signature  slips.  A  signature  slip 
consists  of  a  slip  of  paper  about  the  size  of  a  note,  with  space 
for  date,  signature,  address,  business,  references,  deputy  and 


158  THE  BUSINESS  OF  BANKING. 

memorandum.  When  the  signature  is  written  on  one  of  these, 
it  is  filed  in  alphabetic  order  in  a  letter  or  other  pocket  file. 
One  advantage  in  using  slips  is  that  the  signature  of  an  out- 
of-town  customer  may  be  had  by  inclosing  a  slip  in  an  envel- 
ope and  mailing  it  to  him,  while  it  would  be  exceedingly 
troublesome  and  inconvenient  to  send  him  the  signature  book. 

The  teller  can  compare  doubtful  signatures  with  that  on  the 
signature  slip,  and,  though  many  dealers  vary  their  signature, 
the  teller  must  always  satisfy  himself  that  the  one  on  the 
check  is  genuine.  If  a  dealer  varies  his  signature  he  should 
notify  the  teller  of  the  change. 

§  308.  The  importance  of  the  third  question:  Is  the  person 
presenting  the  check  the  proper  person  to  receive  the  money? 
is  not  of  so  much  importance,  yet  it  often  causes  a  great  deal 
of  trouble.  When  a  check  is  drawn  payable  to  some  person 
or  his  "order"  it  must  be  properly  indorsed  and  the  holder 
known  at  the  bank,  or  properly  identified,  as  being  the  right 
person.  If  the  check  is  payable  to  "bearer"  no  identification 
is  necessary  and  the  bank  will  lose  nothing  even  if  the  holder 
is  not  the  owner,  for  the  drawer  takes  all  the  risk  of  this  kind 
when  he  makes  his  check  payable  to  bearer.  But  if  the 
bank  pays  an  "order"  check  to  the  wrong  person,  even 
though  he  had  successfully  forged  the  indorsement  of  the 
payee,  it  would  have  to  pay  it  a  second  time  to  the  rightful 
owner  of  the  check.  Checks  are  drawn  payable  to  order  to 
avoid  payment  to  the  wrong  person.  It  is  a  form  of  security 
which  drawers  should  not  omit  in  drawing  checks. 

§  309.  Duty  to  Pay  Checks.  A  bank,  doing  ordinary 
commercial  banking,  is  bound  to  meet  the  drafts  of  its  cus- 
tomers. It  gives  the  community  to  understand  that  it  will 
pay  all  of  its  depositors'  checks  on  presentation,  and  this 
amounts  to  an  implied  acceptance  in  advance.  Payment  is 
not  complete,  however,  until  the  amount  is  given  to  the  re- 
ceiver, the  check  cancelled  and  charged  to  the  drawer's  account. 


THE  PAYING  TELLER.  159 

A  bank  is  always  justifiable  in  paying  on  the  depositor's 
demands.  And  if  the  depositor  notifies  the  bank  not  to  pay 
his  check,  or  checks,  and  the  paying  teller  promises  to  regard 
the  notice,  but  does  not,  the  drawer  can  recover  the  amount 
from  the  bank.d  Of  course,  when  a  check  is  estopped  the 
maker  is  answerable  to  the  holder  for  any  consequential  injury. 

If  a  check  is  drawn  by  a  depositor  on  a  sufficient  deposit 
and  the  bank  refuses  payment,  the  depositor  can  maintain  an 
action  against  it  for  the  wrong  done,  although  no  actual  dam- 
age may  have  been  sustained.6 

In  like  manner  if  a  check  has  not  been  revoked  the  holder 
expects  it  to  be  paid  on  presentation.  He  may  suffer  a  real 
injury  by  refusal  for  which  he  may  be  without  redress,  as  in 
the  case  of  the  drawer's  insolvency  before  recourse  to  him 
could  be  effectual.  From  the  usage  of  business,  the  holder 
has  the  bank's  implied  promise  to  pay,  and  he  ought  to  have 
a  remedy  against  such  bank  for  any  breach  of  contract.  So 
that  if  a  bank,  in  violation  of  its  duty,  dishonors  a  check,  the 
holder  may  be  injured  quite  as  much  as  the  drawer,  and  the 
bank  is  answerable  to  both  for  its  breach  of  contract/ 

§  310.  Can  a  Bank  Delay  Payment?  A  bank  is  bound  to 
pay  a  check,  drawn  by  a  depositor,  within  a  reasonable  time  ; 
provided  there  are  sufficient  funds  belonging  to  the  depositor 
for  the  purpose.  But  a  bank  is  not  legally  bound  to  the  holder 
to  pay  or  accept  a  check  drawn  by  a  depositor,  although  there 
may  be  sufficient  funds  for  the  purpose  to  his  credit  at  the 
time  of  the  presentment.  But  if  it  does  not  accept  it  must  refuse. 
It  has  no  right  to  receive  and  keep  a  check  indefinitely, 
thereby  leaving  the  holder  to  suppose  that  it  has  accepted  it 
and  assumed  its  payment.* 

In  several  casesh  it  has  been  decided  that  a  delay  of  more 
than  one  day  would  be  an  unreasonable  delay  and  the  bank 
would  be  liable  on  an  implied  acceptance. 

d  Schneider  ?'.  Bank,  i  Daly,  500. 

eMarzetti  v.  Williams,  i  Barns  &  Ad.,  415. 

f  Saylor  v.  Bushong,  100  Pa  ,  23. 

'Bank  v.  McMichael,  106  Pa.,  464. 

h  Saylor  v.  Bushong,  100  Pa.,  23;  Grammel  v.  Carmer,  55  Mich.,  201. 


160  THE  BUSINESS  OF  BANKING. 

§311.  Part  Payment.  If  a  check,  offered  for  payment, 
is  for  a  larger  amount  than  is  due  the  depositor,  and  the 
holder  is  willing  to  receive  the  balance  due  from  the  bank, 
the  paying  teller  should  honor  the  check  to  this  extent,  cred- 
iting the  amount  paid  thereon. 

In  Illinois,  however,  the  bank  is  "under  no  obligations  to 
make  a  partial  payment,"  for  then  the  check  could  not  be 
taken  and  held  as  a  voucher.1  In  Massachusetts  the  rule  is 
stated  thus  :  "  A  check  drawn  upon  a  bank  for  more  than  the 
amount  of  the  drawer's  funds  on  deposit  creates  no  lien  upon, 
and  gives  the  payee  no  right  to  the  actual  balance,  until  the 
bank  has  agreed  to  pay  it  pro  tanto"* 

The  holder  of  a  $900  check  presented  it  for  payment  to  the 
paying  teller  of  the  drawee  bank.  The  paying  teller  informed 
the  payee  that  there  was  a  balance  of  only  $700  to  the  credit 
of  the  drawer  and  he  would,  therefore,  have  to  refuse  to  pay 
the  check.  The  holder  then  obtained  $200  and  deposited  it 
with  the  receiving  teller  to  the  credit  of  the  drawer,  then 
stepping  again  to  the  paying  teller's  window  he  obtained  the 
full  amount  of  his  check.  In  a  few  days  the  drawer  failed 
and  it  so  transpired  that  the  holder  of  this  check  received  a 
much  larger  pro  rata  on  his  debt  than  any  of  the  other 
creditors. 

The  question  is  not  legally  settled  whether  the  holder  can 
compel  a  bank  to  pay  a  part  of  a  check.  But  a  bank  doing 
so  is  surely  doing  a  safe  business,  since  the  drawer  has  signi- 
fied his  desire  to  have  the  holder  paid,  and  if  the  deposit  is 
not  sufficient  to  pay  the  entire  amount  of  the  check,  he  could 
surely  make  no  objection  to  a  partial  payment.  It  is  perfectly 
legitimate  for  a  bank  to  receive  a  deposit  and  pay  a  short 
check. 

§  312.  Post-dated  Checks.  A  post-dated  check  is  one 
which  is  dated  ahead.  A  wants  B  to  pay  a  debt.  B  says  he 

'Coats  v.  Preston,  105  111.,  470. 
^.  Bank,  13  Allen,  445. 


THE  PAYING  TELLER.  161 

has  no  money  but  will  have  some  next  week.  A  requests 
him  to  give  him  a  check  dated  some  day  next  week  and  he 
will  hold  it  until  that  day.  B  thinks  he  will  have  the  money 
in  the  bank  by  a  certain  day  and  accordingly  gives  A  a  post- 
dated check. 

This  kind  of  a  check  is  valid,  but  should  a  bank  pay  it  be- 
fore the  date  mentioned,  the  money  can  be  recovered.11  It 
was  held  that  where  a  banker,  contrary  to  usage,  paid  a 
check  which  had  been  lost  by  the  payee,  the  day  before  it  was 
due  (i.  e. ,  its  date),  he  was  liable  to  repay  the  amount  to 
such  payee.1 

The  system  of  dating  ahead  is  generally  condemned  by  all 
good  business  men  as  well  as  bankers,  and  the  different  phases 
of  the  question  are  just  now  receiving  much  attention  at  the 
hands  of  trades  committees  in  different  localities.  Some  of 
the  more  prominent  of  these  committees  seem  to  think  that 
the  system  is  so  wide-spread  and  deep-rooted  that  it  cannot 
be  done  away  with  except  by  mutual  agreement  and  co-oper- 
ation ;  that  any  remedy  that  might  be  proposed  must  be  in 
accordance  with  the  wishes  of  the  trade. 

It  is  the  universal  opinion  that  the  system  is  a  great  evil, 
and  all  seem  to  desire  its  abolition  or  modification. 

The  abolition  of  the  system  will  be  of  great  benefit  to 
banks,  as  undue  losses  are  the  inevitable  result  of  transactions 
which  are  not  based  on  sound  financial  principles. 

§  313.  Partnership  Deposits,  i.  Keeping  the  Account. 
Without  expressed  authority,  a  partner  has  no  right  to  open  a 
bank  account,  on  behalf  of  the  firm,  in  his  ov/n  name.  Even 
when  the  partnership  business  is  carried  on  in  the  name  of  one 
partner,  for  their  individual  protection  the  other  may  insist 
that  the  deposits  be  kept  in  the  partnership  name.  And  if  a 
deposit  is  made  in  the  name  of  one  partner,  this  is  not  con- 
clusive that  the  account  was  opened  on  his  own  behalf. ra 

kGodlin  v.  Bank,  6  Duer,  76. 
1  Wheeler  v.  Guild,  20  Pick.,  552. 
111  Cooke  v.  Seeley,  2  Ex. ,  745. 


162  THE  BUSINESS  OF  BANKING. 

2.  How  Withdrawn.     By  paying  out  of  a  partnership  de- 
posit, on  an  individual  partner's  check,  a  bank  could  justify 
itself  only  by  proving  that  the  money  was  applied  to  the  firm's 
use.     Unless  some  special  agreement  is  made  regulating  the 
mode  of  drawing  checks  on  the  partnership  deposit,  the  bank 
must  honor  checks,  not  post-dated,  drawn  in  the  partnership 
name,  but  not  otherwise." 

3.  Surviving  Partner.      When  a  partnership  is  dissolved 
by  the  death  of  one  of  the  partners,  the  surviving  partner  has 
the  right  to  withdraw  the  deposit  in  the  name  of  the  partner- 
ship or  in  his  own  name  as  surviving  partner. 

4.  Deposits  of  Old  and  New  Partnerships.      If  a  partner- 
ship be  dissolved  and  a  new  one  formed,  the  bank  cannot  ap- 
ply the  deposits  of  the  new  firm  to  the  payment  of  an  over- 
draft, or  any  other  debt,  of  the  old  firm,  whenever  notice  of 
the  change  has  been  given.     Such  deposits  must  be  used  in 
paying  the  checks  of  the  new  firm. 

§  314.  Checks  of  a  Corporation.  When  a  corporation 
deposits  money  it  generally  sends  a  form  of  the  mode  in  which 
the  checks  are  to  be  drawn,  and  when  this  is  done  it  is  not 
necessary  for  the  bank  to  inquire  into  its  articles  of  incorpora- 
tion as  to  how  the  directors  are  appointed  before  paying  its 
checks. 

By  virtue  of  his  office,  a  president  of  a  corporate  body  has 
no  power  to  draw  checks.  This  authority  may  be  given  him, 
however,  by  by-laws,  charter,  or  usage. 

§  3115.  Identification.  This  subject  being  of  great  import- 
ance is  entitled  to  further  consideration. 

Many  bankers  go  so  far  as  to  require  identification  when 
checks  payable  to  bearer  are  presented  for  payment.  The 
identification  of  the  holder  of  a  check  payable  to  order,  is,  of 
course,  justifiable  caution,  but  a  bank  cannot  rightfully  re- 
quire identification  of  the  holders  of  4 'bearer"  checks,  since 
drawers  waive  such  demand  when  they  fill  up  the  checks 

n  Emly  v.  Lye,  15  East.,  7. 


THE  PAYING  TELLER.  163 

in  this  way.  The  banks  are,  no  doubt,  often  too  strict  in 
this  regard  anyway.  They  ought  to  be  willing  to  waive  the 
rules  under  certain  circumstances,  and  assume,  as  a  part 
of  the  legitimate  risk  of  their  business,  the  very  slight  risk 
which  good  judgment  will  incur,  in  now  and  then  paying 
small  checks  to  well  appearing  persons  who  are  strangers  in 
a  strange  city.  A  teller  ought  to  have  sufficient  judgment  to 
exercise  a  little  latitude  in  this  matter  of  identification.  It  is 
often  impossible  for  strangers  to  furnish  identification,  and 
the  pertinacity  with  which  some  bankers  hold  to  the  rule 
causes  much  trouble  and  inconvenience  to  honest  check  and 
draft  holders. 

In  England,  identification  was  long  ago  abolished.  The 
bankers  found  that  they  could  not  get  through  with  a  day's 
business  under  the  rules,  and  a  law  was  passed  by  Parliament 
authorizing  bankers  to  pay  all  checks  apparently  properly 
indorsed  to  unidentified  holders.  The  loss  to  banks  is  proba- 
bly no  greater  than  under  the  identification  method,  for  banks 
are  often  defrauded  by  scoundrels,  who,  in  some  way,  work 
themselves  into  an  acquaintance. 

A  stranger  comes  to  a  city  and  makes  a  few  business  trans- 
actions with  a  good  business  man.  In  a  few  days  he  is  re- 
quired to  be  identified  at  a  bank,  and  gets  his  business  man  to 
introduce  him  as  a  customer.  Being  fully  identified  and  in- 
troduced by  a  highly  respectable  business  man,  he  succeeds, 
a  few  days  afterward,  in  collecting  a  genuine  check,  which  has 
been  raised  to  ten  times  its  original  amount.  The  stranger 
then  hastens  to  other  fields. 

Some  persons  have  queer  ideas  about  being  identified. 
They  tell  the  teller  that  he  has  no  legal  right  to  presume  that 
the  presenter  is  not  the  right  person,  and  that  the  paying  teller 
ought  at  once  to  pay  or  prove  that  he  is  not  the  man  he  pre- 
tends to  be.  They  say  :  "  If  you  want  any  identification,  go 
and  hunt  it  up  ;  I  am  not  going  to  do  so,  but  I  want  my 
money  "  This  is  good  (?)  logic  but  the  force  of  it  is  lost  in  the 
fact  that  the  bank  has  possession,  which  is  "nine  points  of  the 
law." 


,364  THE  BUSINESS  OF  BANKING. 

§  316.  Identifiers.  The  teller  ought  faithfully  to  record, 
on  the  back  of  the  paid  check,  the  name  and  address  of  the 
person  who  identified  the  payee. 

Of  course  this  brings  up  the  question  of  the  identifier's  lia- 
bility, and  what  recourse  a  bank  can  have  to  him  in  case  any 
trouble  results  from  the  payment  which  he  helped  along. 
This  is  a  question  difficult  to  answer.  A  stranger  presents  a 
check  to  a  bank  for  payment.  He  is  requested  to  furnish 
identification.  He  brings  forward  a  man  known  to  the  bank, 
who  says  he  knows  the  checkholder  to  be  of  the  name  to 
which  the  check  is  made  payable.  The  check  is  cashed,  but 
no  record  made  of  the  identification.  It  turns  out  that  the 
check  was  paid  to  the  wrong  man,  who  had  forged  the  indorse- 
ment. The  teller  knows  that  the  person  was  properly  and 
satisfactorily  identified,  but  for  the  life  of  him  he  cannot  re- 
member the  name  of  the  identifier.  The  bank  loses  the 
money,  no  recourse  being  had  to  an  unknown  identifier. 

But,  on  the  other  hand,  a  record  of  the  identifier  is  not 
always  of  assistance  in  case  of  fraud  or  loss.  The  paying 
teller  paid  a  check  to  an  identified  stranger.  At  the  end  of 
the  month  when  a  settlement  was  made  it  turned  out  that  the 
stranger  had  stolen  the  check  and  forged  the  indorsement.  A 
re-examination  of  the  check  revealed  the  name  of  the  receiv- 
ing teller,  as  identifier.  The  receiving  teller  could  not  re- 
member anything  regarding  the  identification.  Nothing  more 
could  be  done,  so  the  bank  assumed  the  loss. 

Anyway  this  responsibility  of  the  identifier  amounts  to  very 
little.  For  this  reason  it  behooves  every  person  who  has  any 
regard  for  honesty  and  safe  business  methods  to  be  exceed- 
ingly careful  in  identifying  strangers.  Of  course,  the  legal 
phase  is,  as  interpreted  by  the  courts,  that  the  identifier 
undertakes  to  say  that  the  person  holding  the  check  is  of  the 
same  name  as  that  on  the  check,  as  payee.  He  does  not  say 
that  he  is  the  right  payee,  but  simply  that  his  name  is  so  and 
so.  To  be  sure  I  should  not  identify  any  one  at  a  bank 
unless  I  suppose  he  is  the  right  person  and  honest  in  his 


THE  PAYING  TELLER.  165 

intentions.  But  according  to  this  decision  I  simply  testify 
that  his  name  is  so  and  so,  and  unless  it  can  be  shown  that  I 
have  intentionally  aided  in  the  fraud,  or  been  dishonest,  t  can- 
not be  held  at  all  liable. 

Banks  sometimes  pay  to  the  wrong  man  with  the  right 
name.  One  J.  B.  Jones  may  steal  a  check  belonging  to  an- 
other J.  B.  Jones.  He  forges  the  indorsement,  procures 
proper  identification,  gets  the  money,  and  leaves.  The  right 
J.  B.  Jones  comes  along,  demands  the  money,  and  the  victim- 
ized bank  must  pay  and  suffer  the  loss.  If  drawers  of  checks 
in-  favor  of  persons  whose  names  are  common,  like  John  Smith, 
etc.,  would  place  thereon  something  which  would  identify  the 
particular  John  Smith  to  whom  payment  is  ordered,  it  would, 
in  many  cases,  in  large  cities,  prevent  loss. 

A  case  has  recently  been  decided  in  the  Supreme  Court 
of  Colorado  making  the  identifier  liable  for  the  loss.  In  ren- 
dering the  decision  the  Court  said:  "When  a  person  goes 
to  a  bank  with  another,  and  identifies  him  as  the  payee  of 
commercial  paper,  on  the  strength  of  which  the  bank  pays 
the  money,  he  assumes  the  responsibility  for  the  effect  of  his 
identification,  and  is  liable  to  the  bank  if  the  payment  was 
wrong.  It  matters  not  that  he  supposed  the  person  identified 
was  the  proper  person.  When  he  induces  the  bank  to  act 
upon  his  representation,  he  takes  upon  himself  all  responsi- 
bility, and  his  good  faith  does  not  affect  his  liability." 

If  this  principle  is  sustained  and  held  in  other  states,  the 
matter  of  identification  will  be  a  much  more  dangerous  thing 
than  it  is  generally  supposed  to  be. 

§  3 1 7.  Identifying  a  Drummer.  There  is  a  good  idea  con- 
tained in  the  following,  which  is  going  the  rounds  of  the 
press : 

"  There  is  no  source  of  annoyance  to  a  traveling  man  so 
great,"  said  one  of  the  fraternity  the  other  evening,  "as  the 
necessity  to  which  we  are  frequently  put  in  securing  men  to 
identify  us  when  we  desire  to  cash  a  draft  or  money  order. 


166  THE  BUSINESS  OF  BANKING. 

We  are  all  of  us  annoyed  and  embarrassed  at  such  times,  and 
I  never  saw  any  scheme  to  do  away  with  the  difficulty  until 
one  day  last  week  in  Des  Moines,  Iowa. 

44  After  dinner  a  friend  of  mine  said,  'Come  down  to  the 
bank  a  minute,  want  to  show  you  something.' 

44  We  went  down  to  the  bank. 

"  *  Draft  here  for  me?'      *  Yes  sir,'  said  the  teller. 

"  «  Photograph  accompanying  it?'      'Yes  sir.' 

"  '  Please  look  at  it  and  see  if  I  am  the  man.' 

"  The  clerk  did  so.  He  was  the  man,  and  a  moment 
later  he  had  his  money  and  had  been  subject  to  no  trouble 
or  mortification  at  all. 

44  He  told  me  as  we  went  out,  that  he  immediately  returns 
the  photograph  to  his  house.  They  always  inclose  it  with 
drafts.  It's  the  cleverest  scheme  I  ever  saw." 

§  318.  Checks  Paid  by  Other  than  Drawee  Banks.  De- 
positors who  receive  checks  from  their  customers  often  have 
checks  drawn  on  many  different  banks.  These  are  all  depos- 
ited with,  and  collected  through  the  depositor's  own  bank. 
Herein  is  the  necessity  for  the  Clearing-house.  At  the  Clear- 
ing-house each  bank  delivers  to  the  respective  drawee  banks 
all  the  checks  drawn  on  them  which  it  has  taken  as  deposits 
or  paid  in  other  ways.  When  a  bank  thus  pays  a  check 
drawn  on  another  bank  it  has  no  way  of  telling  whether  the 
check  is  a  forgery  or  whether  or  not  the  drawer  has  money  in 
the  drawee  bank.  The  teller  must  therefore  depend  entirely 
upon  the  question  as  to  whether  the  holder  is  the  proper  per- 
son to  receive  the  money,  and  whether  the  bank  would  be 
able  to  recover  from  such  holder  should  the  drawee  bank  fail 
to  pay.  So  that  banks  seldom  pay  checks  drawn  on  other 
banks  except  to  their  own  dealers  or  those  to  whom  they  feel 
certain  they  can  have  recourse  in  case  of  loss. 

When  a  bank  does  cash  a  check  drawn  on  another  bank,  its 
acts  are  construed  as  being  equivalent  to  an  identification  of 
the  payee.  Bank  A  issued  a  certificate  of  deposit  payable  to  C. 


THE  PAYING  TELLER.  167 

The  bank  took  on  its  signature  book  the  mark  of  the  depos- 
itor who  said  he  could  not  write,  and  wrote  a  description  of 
him  opposite.  Soon  after  a  stranger  stole  the  certificate  and 
appeared  at  bank  B  and  said  he  could  not  write.  The  cashier 
of  bank  B  thereupon  indorsed  it  to  his  order  and  wrote  C's 
name.  The  stranger  made  his  mark  and  a  clerk  signed  as 
"witness  to  the  mark."  The  cashier  then  indorsed  it  and 
sent  it  through  a  correspondent  to  bank  A,  who  paid  it,  and 
in  due  time  the  stranger  received  the  money.  Now  the  real 
depositor,  C,  appeared  at  bank  A  and  demanded  payment. 
The  bank  acknowledged  the  forgery  and  paid  him.  It  then 
brought  suit  against  bank  B  to  recover  payment  on  the  forged 
indorsement.  It  was  held  that  bank  A  had  a  right  to  rely  on 
the  identification  of  the  real  depositor  by  bank  B  and  could 
therefore  recover.0 

§  3 1 9.  Receipt  for  the  Payment  of  Checks.  A  gentleman 
presented  to  the  drawee  bank  a  good  check  for  $1,000.  The 
check  had  been  drawn  to  the  order  of  a  person  who  had  prop- 
erly indorsed  it  in  blank  and  passed  it  to  the  present  identi- 
fied holder  who  was  trying  to  collect  it.  The  paying  teller 
asked  this  holder  to  put  his  name  upon  the  back  of  the  check. 
This  he  refused  to  do,  saying  it  was  not  payable  to  his  order, 
that  he  had  no  interest  in  it  except  to  collect  it,  and  that  the 
paying  bank  had  no  right  to  demand  a  receipt  of  him  since  it 
would  have  a  full  and  complete  voucher  when  it  took  up  the 
check.  This  is  a  difficult  question  to  settle.  True  the  bank 
had  no  legal  right  to  require  a  receipt  since  the  voucher 
would  be  surrendered  to  it,  but  the  signature  of  such  a  check 
collector  is  a  very  desirable  thing  for  a  bank  to  have  for  cor- 
roboration  and  reference  should  anything  unusual  turn  up  in 
the  future  history  of  the  check,  and  it  is  desirable  for  the 
paying  teller  to  procure  the  collector's  name  whenever  possi- 
ble. Few  check  collectors  will,  under  such  circumstances, 


°Bank  v.  Trust  Co.,  2  Dillon,  n. 


i68  THE  BUSINESS  OF  BANKING. 

refuse  to  furnish  it.  When  a  check  is  payable  to  the  payee, 
or  order,  and  the  payee  presents  it  for  payment,  most  banks 
get  his  signature.  Even  when  checks  are  drawn  payable  to 
bearer,  many  banks  make  a  practice  of  requiring  the  indorse- 
ment of  the  collector,  unless  he  is  the  drawer.  This  is  a  good 
method,  for  it  gives  the  bank  a  name  for  reference  in  case 
there  should  arise  any  trouble  in  the  future. p 

§  320.  How  Checks  are  Usually  Cancelled.  After  pay- 
ing a  check,  banks  have  a  custom  of  stamping  it  "paid,"  or 
stamping  or  cutting  some  peculiar  hole  through  it  to  denote 
that  it  has  reached  the  end  of  its  journey.  The  punches 
which  some  banks  use  cut  pieces  out  of  checks,  which  pieces 
may  bear  some  figure  or  other  mark  that  may  be  of  much 
importance  in  case  of  a  suit  against  the  bank. 

All  agree  that  the  paying  teller  should  cancel  all  checks 
before  passing  them  to  the  bookkeeper  to  be  charged.  The 
absence  of  a  teller's  cancellation  would  give  a  bookkeeper  an 
excellent  chance  to  use  the  check  a  second  time. 

A  peculiar  cut,  made  usually  with  a  spindle  at  the  time  the 
check  is  paid,  and  which  removes  no  portion  of  the  check,  is 
the  proper  mode  of  cancellation,  and  the  one  now  in  use  in 
most  banks. 

§321.  Checks  Cancelled  by  Mistake.  Tellers  will  some- 
times cancel  checks  when  they  have  not  been  paid  and  are  not 
to  be  paid  by  them.  Such  checks  may  be  drawn  on  another 
bank,  and  as  the  cancellation  is  supposed  to  be  evidence  that 
the  check  has  been  finally  paid,  it  is  the  duty  of  the  person 
who  by  mistake  punches  such  check  to  make  a  formal  record 
upon  the  check  and  just  under  the  punch,  that  the  cancelling 
was  done  by  mistake.  This  should  be  done  before  it  is  passed 
along  to  the  drawee  bank.  And  should  a  cancelled  check 
reach  the  drawee  bank,  not  containing  the  record  just  men- 
tioned, it  should  be  immediately  returned  to  the  bank  in  error 
for  its  certification  that  the  stamping  was  done  by  mistake. 

r  Patten  on  Practical  Banking,  p,  14, 


THE  PAYING  TELLER.  169 

However,  a  bank  could  hardly  refuse  absolutely  to  pay  a  check 
simply  because  it  has  a  hole  or  cut  in  it. 

§  322.  Certification.  To  count  the  money  for  large  pay- 
ments would  be  a  long  process.  It  could  not  be  done.  So 
men,  by  drawing  checks,  make  their  own  money,  millions  of 
dollars  every  day,  and  destroy  it  at  night.  But  many  men 
will  not  take  checks,  and  especially  for  large  amounts,  without 
good  reasons  to  believe  that  they  will  be  paid  when  presented 
to  the  drawee  bank.  To  avoid  having  the  drawee  bank  count 
out  the  money  to  the  drawer,  and  the  drawer  count  it  over  to 
the  creditor,  and  the  creditor  count  it  over  to  his  bank,  who 
would  of  course  count  it  to  see  if  it  is  right — to  avoid  all  this 
counting  of  money  and  the  resulting  loss  of  time,  the  drawer 
takes  the  check  to  his  bank  for  certification.  This  consists  in 
the  teller  writing  or  stamping  the  words  "  Certified,"  "  Good," 
or  "  Good  when  properly  indorsed, "  the  date  or  amount  and 
his  signature  on  the  face  of  the  check.  This  is  the  bank's 
written  promise  to  pay  the  check,  and  is  as  good  as  the  bank's 
note.  Even  if  a  bank  should  wrongly  certify  a  check  it  would 
be  liable  for  the  payment,  unless  the  certification  gave  notice 
on  the  face  of  it  that  it  was  irregularly  done. 

When  the  depositor's  balance  is  sufficient  to  pay  the  check 
presented  for  certification,  the  duty  of  the  paying  teller  is  very 
simple.  He  certifies  it  at  once.  But  he  is  often  asked  to  certify 
checks  for  a  larger  amount  than  the  balance  to  the  credit  of 
the  depositor.  This  the  National  Bank  Act  positively  forbids. i; 
But  under  the  state  bank  system  no  such  restriction  prevails. 

If  an  officer  certifies  contrary  to  the  Bank  Act  the  certifi- 
cation does  not  thereby  become  invalidated.  It  is  as  binding 
against  the  bank  as  if  the  drawer's  account  was  good  for  the 
amount.  The  certification  is  legal,  and  the  law  expresses  only 
the  consequences  of  over-certification.  It  would  defeat  the 
policy  of  the  Act,  intended  as  it  is,  to  promote  the  security 
and  strength  of  the  national  banking  system,  to  construe  the 

iSee  §62. 


170  THE  BUSINESS  OF  BANKING. 

provisions  so  as  to  inflict  a  loss  upon  them,  and  a  consequent 
impairment  of  their  financial  responsibility. r 

Of  course  when  a  depositor  asks  for  over-certification  he 
expects  to  make  good  the  balance  in  a  short  time,  probably 
before  the  close  of  the  day.  The  paying  teller  acts  on  his 
own  authority  and  has,  therefore,  a  great  deal  of  latitude.  He 
may,  of  course,  get  the  advice  of  the  cashier  or  president,  but 
in  any  event  the  question  is  decided  quickly.  If  the  asking 
party  is  an  old  and  desirable  customer,  the  teller  does  not 
hesitate  to  certify,  but  if  he  is  a  new  and  comparatively  un- 
known dealer  the  teller  would  refuse.  The  teller's  authority 
to  certify  is  nearly  independent  of  his  superior  officers.  He 
may,  of  course,  refer  to  them  for  special  instructions.  Dealers 
apply  to  them  to  reverse  his  decisions,  but  seldom  with  suc- 
cess. The  officers  usually  say,  "The  teller  understands  his 
business  better  than  we  do.  " 

Certified  checks  are  usually  returned  the  following  day  in 
the  debit  exchanges  from  the  Clearing-house.  Often,  however, 
they  are  sent  to  other  places  and  do  not  return  for  several 
days. 

§  323.  When  a  check  is  certified  it  is  immediately  charged 
to  the  drawer's  account,  certification  being  equivalent  to 
payment.  By  any  other  method  the  dealer  would  be  enabled 
to  withdraw  his  balance  in  the  bank  after  certification  but 
before  the  certified  check  had  been  returned  for  redemption, 
and  thus  leave  the  bank  to  pay  the  amount  a  second  time. 
An  account  with  "Certified  Checks"  is  credited  with  the 
amount  of  such  checks  at  the  time  the  drawer  is  debited. 
When  they  are  redeemed  "  Certified  Checks  "  is  debited,  so 
the  credit  excess  of  this  account  will  show  the  amount  of  certi- 
fied checks  outstanding. 

Often  depositors  ask  for  certification  of  checks  for  small 
amounts.  On  being  told  by  the  teller  that  he  would  rather 
cash  it  on  the  spot,  the  depositor  demands  certification.  It 

1  Thompson  v.  Bank,  113  N.  Y.,  325. 


THE  PAYING  TELLER.  171 

is  wise  banking  to  refuse  to  certify  small  checks  and  set  them 
afloat,  and  a  check  presenter  has  no  power  to  compel  a  cer- 
tifying bank  to  certify  even  a  check  for  a  large  amount. 

§  324.  Good  When  Properly  Indorsed.  Some  banks  use 
the  words  "Good  when  properly  indorsed,"  in  their  certifica- 
tions. This  matter  of  the  proper  indorsement  is  implied  in  all 
certifications.  Many  people  have  an  erroneous  impression  as 
to  what  a  bank's  certification  covers.  It  means  simply  that 
the  depositor  has  on  deposit  the  amount  of  money  that  the 
check  calls  for,  and  that  the  amount  will  be  reserved  by  the 
bank  to  pay  that  check  when  returned.  It  does  not  certify  to 
nor  guarantee  any  of  the  indorsements. 

One  of  the  most  common  defects  in  bank  checks  is  the 
want  of  proper  indorsement.  Suppose  a  check  is  presented 
for  payment  when  in  want  of  some  indorsement,  or  bearing 
some  irregularity  of  indorsement  which  precludes  the  bank 
from  making  payment. 

We  have  in  mind  a  case  that  could  not  be  remedied  by  any 
sort  of  guarantee  by  the  collector  of  the  lame  check.  In  such 
an  instance  there  is  nothing  for  the  presenting  bank  to  do- 
supposing  it  is  in  the  hands  of  a  collecting  bank — but  to 
return  it  unpaid  to  the  correspondent  from  whom  it  w?s 
received,  with  the  request  that  it  be  made  good.  It  is  a  per- 
fectly good  check  now,  but  if  it  has  a  long  journey  to  travel 
it  may  be  the  check  of  an  insolvent  when  it  returns  for  repre- 
sentation. Here  is  a  risk,  but  it  may  be  avoided  by  asking 
the  bank  upon  which  the  check  is  drawn,  and  which  concedes 
that  it  is  a  good  check  now,  to  set  aside  the  funds  for  which 
it  calls,  until  it  returns  in  its  corrected  condition.  This  may 
be  done  by  certification,  the  depositor  being  debited  with  the 
amount  certified,  as  already  explained.  The  form  "Good 
when  properly  indorsed,' '  is  specially  fitted  to  the  circumstance, 
and  no  bank  has  a  right  to  refuse  to  certify  a  check  in  this 
way  for  the  purpose  described.5 

s  Patten  on  Practical  Banking,  p.  16. 


172  THE  BUSINESS  OF  BANKING. 

§  325.  A  case  is  given  by  a  good  authority,  of  a  dealer 
presenting  his  perfectly  good  check  upon  his  bank  for  one 
hundred  thousand  dollars.  The  check  was  drawn  payable  to 
the  order  of  an  individual  who  had  not  indorsed  it,  and  the 
drawer  wanted  an  unconditional  certification  in  its  unindorsed 
condition.  If  the  bank  had  certified  it,  the  form  would  have 
been  "Good  when  properly  indorsed;"  but  in  this  instance  the 
board  of  directors  had  prohibited  the  cashier  from  ever  certi- 
fying checks.  The  drawer  wished,  in  paying  the  payee,  to 
secure  his  indorsement,  as  a  receipt,  in  a  transaction  he  was 
making,  and  this  payee  had  refused  to  accept  the  check  unless 
it  bore  the  drawee  bank's  certification,  and  the  cashier's  refusal 
to  certify  annoyed  him  greatly.  The  drawer  then  requested 
that  the  bank  issue  a  certificate  of  deposit  in  favor  of  the 
payee  of  the  check  on  the  check  in  its  still  unindorsed  condi- 
tion. This  request  was  also  refused.  The  experienced  banker 
will  agree  that  it  would  not  have  been  good  banking  to  have 
complied  with  either  of  these  requests  made  by  the  dealer  in 
the  case  described. 

§  326.  Import  of  "Good."  The  word  "good,"  in  certify- 
ing, is  held  to  be  equivalent  to  an  acceptance  of  a  bill  of  ex- 
change and  to  be  the  admission  simply  of  the  genuineness  of 
the  signature  of  the  drawer,  and  that  there  are  funds  for  its 
payment.  The  bank  becomes  so  far  the  principal  debtor  that 
it  is  not  entitled  to  demand  and  notice,  and  delay  in  collect- 
ing for  a  year  or  more  will  not  affect  its  obligation. 

§  327.  Payment  of  a  Forged  Certification.  If  a  check 
contains  a  forged  certification  which  the  teller  asserts  is  his 
certification,  and  that  it  is  genuine,  it  is  adopted  and  the  bank 
is  bound  by  it  as  though  it  was  genuine.* 

§328.  Certification  Equivalent  to  Payment.  As  already 
stated,  certification  is  equivalent  to  payment,  the  amount  for 
which  the  check  calls  being  taken  from  the  drawer's  account 
and  held  as  a  deposit  to  the  credit  of  the  check,  and  is  for- 


'Bank  v.  Bank,  50  N.  Y.,   575. 


THE  PAYING  TELLER.  173 

ever  withdrawn  from  the  maker  except  as  a  holder  of  the 
check.  A  certified  check  is,  in  effect,  the  note  of  the  bank 
payable  on  demand.  Each  is  intended  to  circulate  as  money  ; 
each  is  an  absolute  promise  to  pay  a  specific  sum  on  demand. 
It  no  longer  possesses  the  character  of  a  check.  It  is  more 
like  a  certificate  of  deposit. 

The  amount  of  the  check  being  thus  beyond  the  control  of 
f  the  drawer,  he  has  no  authority  to  stop  payment  on  it. 

A  check  is  due  when  certified,  and  the  drawer  is  discharged 
at  once.  The  law  will  not  permit  a  check  when  due  to  be 
presented  and  the  money  thus  left  for  the  convenience  of  the 
holder  without  discharging  the  drawer.  The  check  is  due,  and 
it  is  the  holder's  fault  if  he  declines  to  receive  the  money  and 
for  his  own  convenience  appropriates  the  money  to  that  check 
subject  to  its  future  presentation  at  any  time  within  the  stat- 
ute of  limitation  s. 

§  329.  Raised  Checks.  A  raised  check  is  one  in  which  the 
amount  has  been  changed  from  its  original  sum  to  a  larger 
amount.  The  drawer  often  aids  and  encourages  such  practice 
by  the  manner  in  which  he  fills  up  the  check  form.  He  fills 
up  a  check  for  twenty  dollars  thus: 

Twenty Dollar  sy 

leaving  enough  room  for  the  check  raiser  to  insert  "One 
thousand"  to  the  left  of  the  word  twenty,  or  "99-100"  to  the 
right  of  it.  Or  he  writes  it  thus: 

Five Dollars, 

without  filling  the  space  between  "  Five  "  and  "  Dollars,  "  thus 
offering  a  splendid  opportunity  to  write  "hundred"  or  "thou- 
sand" after  the  word  "Five."  The  drawer  is  liable  for  all 
losses  occasioned  by  his  own  carelessness,  as  in  the  cases  just 
described. 

If  c.  check  is  raised  before  certification  the  bank  is  not  liable 
for  the  raised  amount,  and  when  payment  has  been  made  it 
may  recover.  By  certification  the  bank  guarantees  the  gen- 
uineness of  the  drawer's  signature,  and  that  he  has  sufficient 


174  THE  BUSINESS  OF  BANKING. 

funds  on  deposit  to  pay  the  amount.  It  does  not  engage  to 
say  that  the  check  is  filled  up  properly  any  more  than  that 
the  indorsements  are  all  right.  A  bank  cannot  be  supposed  to 
be  familiar  with  the  signatures  of  the  indorsers,  nor  know 
whether  or  not  the  check  has  been  ingeniously  raised.  For 
these  contingencies  the  reliable  identified  check  collector  is 
fully  responsible.  When,  therefore,  a  bank  check  has  been 
raised  before  certification,  the  certifying  bank  cannot  be  call- 
ed upon  to  pay  the  amount  of  the  raised  portion.  And  should  a 
bank  certify  a  raised  check  and  subsequently  pay  the  amount 
without  any  culpable  negligence  on  its  part,  it  can  recover  the 
money  thus  paid  as  money  paid  by  mistake. 

§  330.  An  Example  of  a  Raised  Check.  A  scoundrel  re- 
ceived from  the  payee,  bearing  his  indorsement,  a  check  for 
$65,  on  a  Des  Moines  bank.  With  acids  he  entirely  removed 
the  "  Sixty-five"  and  inserted  "Five  Hundred"  instead.  He 
procured  a  proper  identification  to  the  drawee  bank  and  had  the 
altered  check  certified.  An  innocent  party  afterward  cashed  it 
and  deposited  it  in  another  bank.  Before  passing  through  the 
Clearing-house  the  payee  bank  had  discovered  the  fraud  and 
refused  to  allow  more  than  $65,  for  this  was  all  it  could  charge 
upon  the  drawer's  account  for  it.  The  loss  of  $435,  the  dif- 
ference between  $65  and  $500,  fell  on  the  innocent  party,  who 
had  unfortunately  cashed  a  raised  check  ;  and  a  good  author- 
ity asserts  that  that  is  where  losses  of  this  and  similar  char- 
acter are  always  placed. 

The  fact  that  the  bank  had  certified  the  check  as  good  for 
$500  did  not  help  the  holder,  since  the  law  does  not  hpld  a 
bank  liable  in  such  cases  where  it  has  exercised  proper  care, 
any  more  than  if  it  had  paid  the  amount  at  once.  If  the 
bank  had  paid  at  once  instead  of  certifying,  it  could  have  de- 
manded the  $435  back  from  the  collector. 

§  331.  Payment  by  Mistake.  Even  if  a  bank  by  mistake 
pays  a  check  raised  after  certification  it  can  recover  the 
money,  unless  the  holder  has  suffered  in  consequence  of  the 


THE  PAYING  TELLER.  175 

mistake.  The  certifying  bank  is  not  presumed  to  be  familiar 
with  the  writing  or  the  genuineness  of  the  body  of  the  check. 
It  is  legally  bound  to  know  only  the  signature  of  the  drawer 
and  its  own  certification.. 

The  rules  of  law  in  relation  to  the  correction  of  mistakes 
of  matters  of  fact  have  been  gradually  growing  more  liberal 
and  are  moulded  so  as  to  do  equity  between  the  parties. 
There  has  been,  probably,  no  case  which  holds  that  a  pay- 
ment by  mistake,  such  as  here  shown,  cannot  be  recovered.  u 

It  is  maintained  that  when  money  is  paid  by  mistake  on  a 
raised  check,  and  neither  party  is  in  fault,  it  may  be  recov- 
ered on  the  ground  of  a  want  of  consideration.  When  a 
party  to  whom  such  a  check  is  offered  sends  for  information 
to  the  drawee  bank,  the  law  presumes  that  it  has  knowledge 
of  the  drawer's  signature,  and  of  his  account,  and  is  liable  for 
its  answer  on  these  points.  Unless  there  is  something  in  the 
terms  in  which  the  information  is  asked  that  directs  the  atten- 
tion of  the  teller,  or  cashier,  beyond  these  two  matters,  his 
answer  that  the  check  is  good — is  all  right — will  be  limited  to 
them,  and  will  not  extend  to  the  genuineness  of  the  body  of 
the  check,  the  payee's  name,  or  the  amount. 

Even  should  a  teller  inform  a  messenger,  who  might  pre- 
sent a  check  for  information  regarding  it,  that  the  body  of  a 
check  was  genuine,  it  would  be  simply  an  expression  of  his 
opinion  and  could  in  no  way  bind  the  -bank.  It  is  no  part  of 
the  teller's  duty  to  give  an  assurance  as  to  the  genuineness  of 
a  check  except  in  respect  to  the  signature  and  account  of  the 
drawer. 

§  332.  Another  Example  of  a  Raised  Check.  He  was  a 
reputable  business  man,  but  needed  money  badly.  He  stepped 
into  the  bank  when  the  cashier  and  most  of  the  clerks  were 
at  dinner,  and  bought  an  exchange  for  $50.00.  He  went  to 
his  office  and  changed  the  draft  to  $5,000.00,  and,  ascertaining 
that  the  clerk  from  whom  he  purchased  it  was  at  lunch,  ha 

11  Bank  v.  Bank,  55  N.  Y.,   211. 


176  THE  BUSINESS  OF  BANKING. 

again  entered  the  bank  and  carelessly  said  to  the  clerk  in 
attendance  that  a  short  time  before  he  had  bought  a  draft  for 
$5,000  to  send  east,  but  had  since  concluded  to  send  $6,000, 
and  wished  an  exchange  for  that  amount  and  would  return 
the  $5,000  draft  and  pay  the  balance,  $1,000,  in  cash.  No 
suspicion  rested  on  the  man,  and  the  $6,000  draft  was 
handed  to  him. 

Soon  afterward  the  error  was  discovered  and  the  clerk  was 
accused  of  selling  a  $5,000  exchange  and  entering  it  as  $50. 
It  was  a  question  of  veracity  between  a  so-called  respectable 
business  man  and  the  teller,  and  the  teller  was  convicted  and 
sent  to  prison.  When  his  term  was  about  half  served  cir- 
cumstances brought  out  the  real  culprit. 

§  333.  Methods  of  Check  Raisers.  While  it  is  true  that 
many  men  fill  in  their  checks  so  carelessly  as  to  aid  the 
forger,  yet  care  in  this  regard  is  not  a  preventive  against 
check  raising.  It  is  an  easy  matter  to  change  a  six,  a  seven 
or  a  nine  dollar  check  to  sixty,  seventy  or  ninety,  respectively, 
by  the  addition  of  "ty."  An  eight  dollar  check  may  be 
raised  to  eighty  dollars  by  the  addition  of  "y."  It  is  an  easy 
matter  to  change  twenty  to  seventy,  etc. 

He  gave  a  check  for  Two  Hundred  Dollars.  In  a  few 
weeks  it  was  charged  to  him,  at  the  bank,  as  Five  Hundred 
Dollars.  The  forger  had  made  the  "f"  cross  on  the  stem  of 
the  capital  "T"  and  removed  the  last  line  of  the  "o"  in  the 
"Two,"  and  dotted  the  first  part  of  the  "w." 

Even  the  tinted  paper,  used  by  many  banks  and  business 
men,  is  not  a  safe-guard  against  check  raising,  for  the  forger 
removes  the  lines  or  letters  with  chloride  of  lime,  and  after 
raising  the  check,  supplies  the  tint  by  the  use  of  crayon  or 
water  color  and  a  fine  pointed  pen.  The  check  is  then  sub- 
jected to  the  calender  machine,  and  comes  out  seemingly 
perfect. 

Even  the  check  punches  which  are  coming  rapidly  into 
use  are  not  preventives,  for  there  are  instances  where  the 


THE  PAYING  TELLER.  177 

figures  cut  out  of  the  check  by  these  machines  have  been 
filled,  and  by  the  use  of  great  pressure  rendered  almost  proof 
against  detection.  The  checks  are  then  altered  and  a  similar 
check-punch  used  to  perforate  the  raised  amount. 

§  334.  Changing  one  Draft  to  Correspond  with  Another. 
Many  banks  advise  their  correspondents  of  the  drafts  they 
issue,  and  then  if  the  draft  offered  for  payment  does  not  cor- 
respond to  the  advice  it  is  not  paid. 

It  was  in  New  York,  and  the  swindler  knew  that  the  bank 
advised  its  correspondent  of  its  issues  of  drafts.  He  bought 
a  draft  for  $50,  and  one  for  $5,000.  He  then  changed  the  $50 
bill  to  $5,000  and  changed  the  number  to  correspond  with 
the  number  on  the  $5,000  bill.  He  then  sent  the  raised  bill 
for  collection,  and,  as  it  agreed  in  amount,  number,  etc.,  with 
the  advice  received,  it  was  paid.  He  then  negotiated  the 
genuine  bill  and  left  for  other  fields.  The  forged  bill  being 
paid  did  not  invalidate  the  genuine  one  and  it  had  to  be  paid. 

§  334#.  Transferring.  Another  method  used  by  the  crooks 
is  to  transfer  the  amount  of  a  genuine  check  to  several  other 
blank  checks.  This  is  done  by  certain  appliances,  and  is  said 
to  be  done  so  well  that  the  only  method  of  detection  is  a 
comparison  with  the  check  stubs. 

§  33 5.  Filling  up  a  Check  for  less  than  a  Dollar.  Checks 
are  drawn  for  amounts  from  one  cent  to  many  million  dol- 
lars. The  Treasurer  of  the  United  States  has  on  several 
occasions  drawn  checks  for  one  and  two  cents,  and  on  Sept. 
22,  1862,  the  New  York  Clearing-house  received  a  check  for 
one  cent  in  payment  of  a  clearing  balance.  On  the  other 
hand,  the  largest  check  ever  drawn  was  for  .£5,338,650.  It 
was  genuinely  drawn  and  cashed  at  the  time  of  the  amalga- 
mation of  the  diamond  mines  at  Kimberly,  Africa,  and,  if 
estimated  by  the  value  of  a  pound  sterling,  would  amount  in 
our  moneyto  $25,945,839.  This  check  was  cashed  July  18, 
1889,  by  the  Kimberly  branch  of  the  Cape  of  Good  Hope 
Bank,  Limited. 


178  THE  BUSINESS  OF  BANKING. 

But  about  filling  up  small  checks.  This  is  often  done  in  a 
bunglesome  way.  It  should  be  done  by  writing  the  words 
"  Thirty-six  cents"  in  the  space  for  marginal  figures  and  the 
same  words  in  the  space  for  the  amount  in  the  body  of  the 
check.  A  heavy  line  should  then  be  run  through  the  printed 
word  "  Dollars,"  and  you  have  it. 

§  336.  Payment  of  Forged  Checks  not  Recoverable.  We 
have  seen  that  money  paid  by  mistake  can  be  recovered,  yet 
the  payment  of  forged  paper  is  an  exception  to  the  rule. 

If  a  bank  pays  a  forged  check  when  the  holder  is  in  no  way 
to  blame  for  its  mistake,  and  his  condition  would  be  made 
worse  if  he  were  compelled  to  refund  the  amount,  the  money 
cannot  be  recovered  from  him.  The  bank  is  supposed  to 
know  the  handwriting  of  its  customer  better  than  the  holder, 
and  the  law,  therefore,  allows  the  holder  to  cast  upon  it  the 
entire  responsibility  of  determining  as  to  the  genuineness  of 
the  signature;  and  if  it  fails  to  discover  the  forgery,  imputes 
to  it  negligence,  and  as  between  it  and  the  innocent  holder, 
compels  it  to  suffer  the  loss. 

A  bank  should  be  exact  in  its  own  business,  and  must  ascer- 
tain whether  a  check  is  genuine  before  paying  it,  or  its  im- 
puted negligence  will  render  it  liable,  notwithstanding  the 
holder  has  obtained  money  without  consideration.  The  bank 
cannot  be  relieved  from  the  consequences  of  its  negligence  at 
the  expense  of  the  holder,  and  the  holder  may  in  equity  and 
good  conscience  retain  the  money. 

The  rule  works  both  ways,  for  if  the  holder  is  negligent  so 
as  to  affect  the  transaction  he  will  be  liable  and  must  return 
the  money.  To  retain  the  money  he  must  truthfully  assert 
that  he  placed  the  whole  responsibility  upon  the  bank;  that 
he  knew  nothing  of  the  fraud ;  and  that  the  mistake  cannot 
now  be  corrected  without  placing  him  in  a  worse  position 
than  though  payment  had  been  refused. 

§  337-  Cases  wherein  Money  Paid  on  a  Forged  Check 
may  be  Recovered.  But  if  the  parties  are  equally  in  fault, 


THE  PAYING  TELLER.  1  79 

and  the  check  is  paid  on  a  mutual  mistake  of  facts,  * '  in 
respect  to  which  both  were  equally  bound  to  inquire,"  it  may 
be  recovered.  Judge  Janney v  remarked,  that  there  was  every 
reason  to  believe  that  if  the  banking  company  had  required 
the  holder  of  the  check  to  identify  himself  he  would  have 
declined  the  ordeal,  and  it  would  not  have  been  paid.  The 
loss  was  caused,  therefore,  by  its  negligence.  But  whether  or 
not  this  would  have  prevented  the  fraud,  it  was  enough  that 
both  parties  were  bound  to  inquire,  and  allowing  both  to  be 
at  fault,  the  money  could  be  recovered. 

A  check  was  drawn  payable  to  D,  or  order,  and  sent,  in- 
closed in  a  letter,  by  a  clerk  to  the  postomce.  The  clerk 
opened  the  letter  and  cashed  the  check  by  forging  the  words 
"  or  bearer  "  and  obliterating  "  or  order.  "  The  court  held  that 
the  drawer  was  not  negligent  in  giving  the  check  to  his  clerk 
to  be  mailed,  and  that  the  paying  bank  must  return  the 
amount  paid.  w 

§  338.  Loss  Occasioned  by  a  Lack  of  Vigilance.  In  consid- 
ering the  bank' s  responsibility  for  paying  a  check  altered  after 
delivery  by  the  drawer,  it  may  be  said  that  in  disbursing  the 
dealer's  funds  a  bank  can  pay  them  only  in  the  usual  course 
of  business,  and  in  conformity  to  his  directions.  In  debiting 
his  account  it  is  not  entitled  to  charge  any  payments  except 
those  made  at  the  time  when,  to  a  person  whom,  and  for 
the  amount  authorized  by  him.  The  bank  is,  from  necessity, 
responsible  for  any  omission  to  discover  the  original  terms 
and  conditions  of  a  check,  once  properly  drawn  upon  it,  be- 
cause at  the  time  of  payment  it  is  the  only  party,  interested 
in  protecting  its  integrity,  that  has  the  opportunity  of  inspec- 
tion, and  it  therefore  owes  to  its  depositors  the  duty  of  guard- 
ing from  spoliation  the  funds  intrusted  to  it.  The  liability  of 
the  bank,  however,  for  a  loss  occurring  from  neglect  to  exer- 
cise such  vigilance  is  confined  to  the  maker  alone.  x 

v  Ellis  v.  Trust  Co.,  4  Ohio  St.,  660. 

wBelknapr.  Bank,  xooMass.,  376. 

x Crawford  v.  Bank,  10  N.  Y.,  50  ;  Whetler  v.  Gould,  20  Pick.,   545. 


i8o  THE  BUSINESS  OF  BANKING. 

§  339.  Examination  of  Pass  Book.  When  a  bank  pass 
book  has  been  settled  and  the  cancelled  checks  returned  to 
the  depositor,  it  is  presumed  to  be  correct  unless  objection  be 
made  within  a  reasonable  time.  Most  men  are  careful  to 
examine  such  accounts  when  rendered,  but  the  presumption 
may  be  repelled  by  showing  that  the  fraud  or  error  com- 
plained of  was  not  discoverable  by  the  exercise  of  reasonable 
care,  or  nothing  suspicious  had  been  seen,  or  that  the  party 
had  had  no  opportunity  to  examine  the  account. 

A  bank  paid  a  check  for  $16,700,  payable  to  "currency  or 
bearer,"  without  the  endorsement  or  identification  of  the 
holder.  Five  months  afterward  the  alleged  drawer  of  the 
check  in  question  left  his  pass  book  to  be  balanced  up,  and 
the  $16,700  check  was  returned  with  other  vouchers.  In  four 
months  from  the  time  of  balancing  the  book  the  dealer  inti- 
mated to  the  bank  that  the  check  was  a  forgery,  and  in  another 
month  actually  claimed  it  to  be  a  forgery.  The  evidence 
proved  it  to  be  forged,  and  the  decision  was  in  favor  of  the 
dealer.  In  receiving  deposits  a  bank  becomes  the  debtor  of 
the  depositor  and  it  agrees  to  discharge  such  indebtedness  by 
honoring  such  checks  as  he  may  draw  upon  it,  and  it  is  not 
entitled  to  debit  his  account  with  any  drafts  which  he  does  not 
draw.  It  pays  forged  checks  at  its  peril,  and  is  not  justified 
in  charging  them  to  his  account  unless  he  contributed  to 
induce  such  payment  by  his  negligence.7  The  neglect  is  not 
claimed  to  be  prior.  The  dealer  was  in  no  way  responsible 
for  the  bank's  act  in  paying  the  check.  It  parted  with  its 
own  money,  not  the  dealer's.  And  the  loss  cannot  be  trans- 
ferred to  him,  unless  it  can  be  shown  from  all  the  circum- 
stances in  the  case  that  but  for  his  alleged  negligence  in  not 
examining  his  pass  book  at  once  the  bank  could  have  saved 
itself. 

In  instructing  the  jury  the  court  remarked  that  the  depos- 
itor was  under  no  contract  with  the  bank  to  examine,  with 

>  Bank  v.  Risley,  in  U.  S.,  125;  Shipman  v.  Bank,  126  N.  Y.,  318;  Bank  v. 
Morgan,  117  U.  S.,  96. 


THE  PAYING  TELLER.  181 

diligence,  his  returned  checks  and  pass  book.  In  contempla- 
tion of  law  the  book  was  balanced  and  the  checks  returned 
for  the  protection  of  the  depositor,  not  for  the  protection  of 
the  bank  ;  and  when  the  dealer  failed  to  examine  it  the  only 
consequence  was  that  the  burden  of  proof  was  shifted,  and 
the  dealer  then  became  bound  to  show  that  the  account  was 
wrongly  stated.  This  right  he  has  reserved  so  long  as  the 
account  was  not  barred  by  the  statute  of  limitations. 

The  court  held  that  the  dealer  could  not  be  charged  with 
negligence  in  not  examining  the  checks  within  a  reasonable 
time,  but  that  it  must  be  shown  that  he  was  guilty  of  unrea- 
sonable delay  in  giving  notice  after  he  discovered  the  forgery. 
The  check  was  payable  to  "  currency  or  bearer,"  and  the 
holder  was  not  required  to  indorse  it  or  to  be  identified,  and  the 
pass  book  not  being  written  up  for  five  months  after  payment 
was  made  there  was  nothing  in  the  evidence  to  indicate  that 
if  the  bank  had  been  notified  on  the  day  of  writing  up  the 
book  it  would  have  been  in  any  better  condition  to  discover 
the  forger,  or  the  person  who  received  the  money,  or  to  avail 
itself  of  any  measures  to  retrieve  its  loss,  than  from  a  notice 
coming  four  months  afterward.  If  the  dealer  was  negligent, 
it  was  not  shown  that  the  bank  suffered  any  damage  thereby, 
and  such  negligence  could  not,  therefore,  be  alleged  as  a  de- 
fense against  the  dealer's  right  to  recover  the  amount  of  the 
check. z 

'  §  340.  Looking  for  Forgeries.  A  depositor  is  not  required 
to  look  through  his  vouchers  to  see  if  his  name  has  been 
forged,  and  even  if  the  forgery  was  not  discovered  for  several 
months  he  could  recover  the  amount.  Even  if  he  personally 
examines  the  cancelled  checks  and  is  himself  deceived  by  the 
forgery,  his  failure  to  discover  it  will  not  shift  on  him  the  loss 
which  belongs  to  the  bank.  Banks  are  bound  to  know  the 
signature  of  their  dealers,  and  if  they  pay  forged  checks  they 
commit  the  first  fault,  and  cannot  visit  the  consequences  upon 
the  innocent  depositor. 

zjanin  v.  Bank,  Sup.  Ct.  Cal. 


i8a  THE  BUSINESS  OF  BANKING. 

If  a  depositor  commits  the  examination  of  his  pass  book 
and  vouchers  to  his  agents  and  they  fail  to  discover  any  de- 
ceit, though  he  would  have  discovered  it  had  he  examined 
them,  the  bank  cannot  justly  complain,  although  the  forgeries 
are  not  discovered  until  it  is  too  late  to  retrieve  its  position  or 
make  reclamation  from  the  forger.  a 

In  Pennsylvania,  however,  the  rule  that  the  drawee  is  liable 
for  payment  to  the  wrong  person  though  done  through  forgery, 
has  been  changed  by  statute  ;  the  bank  can,  in  that  state,  re- 
cover from  the  holder,  the  money  thus  erroneously  paid.  The 
mere  want  of  care  or  diligence  in  paying  a  forged  paper  will 
not  alone  preclude  the  payer  from  recovering  the  money. 

§  341.  Payment  of  Forged  Indorsement.  When  a  check 
is  payable  to  order,  it  must  be  proved  that  the  required  order 
was  given — that  the  indorsement  is  genuine — in  order  to  apply 
the  drawer's  funds  to  its  payment.  The  burden  of  proof,  of 
course,  rests  on  the  drawer.  If  the  bank  pays  a  forged  indorse- 
ment, the  act  is  its  wrong,  and  it  is  liable  to  the  payee,  if  the 
check  is  his  property,  and  if  it  had  not  yet  come  to  the  hands 
of  such  payee,  the  bank  is  liable  to  the  drawer  for  misapplica- 
tion of  his  funds,  and  must  replace  them.  b 

Only  the  payee  can  assert  a  title  to  a  paper  payable  to  his 
order,  without  his  indorsement. 

We  have  already  seen  that  after  a  bank  pays  on  the  forged 
signature  of  the  drawer,  it  cannot  recover,  though  it  may  re- 
cover in  case  of  payment  on  a  forged  indorsement,  and  mere 
lapse  of  time  between  payment  and  discovery  of  the  forgery 
will  not  deprive  it  of  its  remedy  unless  there  be  unreasonable 
delay  between  discovery  and  notice. 

When  several  successive  indorsers  have  advanced  money  on 
a  check  or  draft  and  it  turns  out  that  neither  had  a  title  be- 
cause the  first  indorsement  was  a  forgery,  each  may  recover 
from  his  immediate  indorser. 


»  Frank*/.  Chemical  National  Bank,  84  N.  Y.,  209. 
b  Morgan  i>.  Bank,  i  Duer,  438. 


THE  PAYING  TELLER.  183 

An  indorsement  is  a  warranty  by  the  indorser  to  each  sub- 
sequent holder,  in  good  faith,  that  the  instrument  itself  and 
all  signatures  antecedent  to  his  indorsement  are  genuine  ;  and 
when  these  are  forgeries  the  indorser  is  liable  on  his  warrant 
to  his  subsequent  holder  without  demand  or  notice. 

§  342.  Checks  Payable  to  Bearer.  If  a  check  is  drawn 
payable  to  some  person  "  or  bearer, "  it  is  transferable  by  de- 
livery, without  indorsement.  A  bona  fide  holder  of  such  a 
check,  obtained  for  a  valuable  consideration,  even  from  a  thief 
or  finder,  acquires  a  good  title  to  it,  and  the  drawer  must  bear 
the  loss. 

Unless  there  are  reasons  for  suspecting  that  he  obtained  it 
by  fraud,  the  holder  of  a  check  payable  to  bearer  need  not 
prove  that  he  obtained  it  for  a  consideration. 

§  343-  When  is  a  Check  Due?  A  check  is  generally 
supposed  to  be  for  immediate  payment,  and  not  for  circulation. 
It  should,  therefore,  be  presented  for  payment  within  a  reason- 
able time,  usually  on  the  same  or  the  following  day  after  the 
holder  receives  it ;  if  he  fails  to  do  this  and  the  bank  should, 
in  the  meantime,  become  insolvent,  he  must  bear  the  loss. 

A  check  was  drawn  on  the  2Oth  of  September  ;  it  ought  to 
have  been  presented  for  payment  on  the  2ist,  but  was  not 
presented  until  the  26th.  This  is,  therefore,  just  like  the  case 
of  a  note  or  bill  of  exchange  taken  after  maturity,  and  the 
party  taking  it  has  no  better  title  than  the  person  from  whom 
he  received  it,  and  cannot  recover  upon  it. c  This  doctrine  is, 
however,  not  generally  held.  d  See  §  355. 

§  344.  Indorsement  for  Identification.  Checks  and  drafts 
are  often  indorsed  for  no  other  purpose  than  to  identify  the 
holder,  and  when  this  can  be  proven  the  indorser  cannot  be 
held  liable  as  an  indorser.  By  writing  the  words,  "  For  iden- 
tification, "  after  his  name  on  the  back  of  the  check  or  draft, 
the  indorser  will  avoid  the  burden  of  proof  which  would  oth- 

cDown  v.  Hailing,  4  Barn.  &  ^r.,  330. 
d  Rothschild  -v.  Corney,  9  Barn  &  Cr.,  388. 


184  THE  BUSINESS  OF  BANKING. 

erwise  fall  on  him.  Such  an  indorsement  relates  only  to  the 
identity  of  the  holder  and  to  nothing  else.  The  question  in 
such  a  case  is,  for  what  purpose  did  the  indorser  bind  himself  ? 
"  For  as  he  bound  himself  will  he  be  bound.  " e 

§  345.  Indorsement  for  Deposit.  Many  checks,  drawn 
on  other  banks,  are  paid  as -a  matter  of  convenience  to  a 
bank's  customers.  There  are  several  ways  of  indorsing  such 
checks.  By  writing  only  his  name  on  the  back — a  blank  in- 
dorsement— the  payee  makes  it  payable  to  bearer,  and  it  then 
comes  under  the  same  rules  as  if  originally  drawn  payable  to 
bearer. 

A  form  often  used  is,  "  For  deposit  only,  for  the  credit 

of ,"  but  this  transfers  the  title,  and  if  it  is  followed 

up  by  similar  indorsements  it  changes  title  at  every  stage.  If 
after  the  drawee  bank  has  paid  and  the  money  starts  on  its 
return  trip,  any  bank  through  which  it  passes  should  fail  with 
the  money  in  its  possession,  that  money  would  go  into  its  gen- 
eral fund  to  be  distributed  pro  rata  among  the  creditors. 

If  the  original  holder  were  to  indorse  thus:  "  Collect  for  my 

account,"  or  "For  deposit,"  or  ''For  deposit  at Bank," 

these  words  imply  that  the  holder  has  not  parted  with  his 
title,  and  that  all  subsequent  holders  are  agents  for  the  pur- 
pose of  collecting  only.  In  such  a  case,  should  the  bank  fail, 
as  above,  the  original  holder  could  compel  the  receiver  to  pay 
over  the  amount  to  him  in  full.  "  For  collection  and  deposit" 
is  a  form  much  used. 

Of  all  these  the  one  by  blank  indorsement  is  probably  the 
least  desirable.  To  obviate  the  trouble  of  writing  the  words 
1  'For  deposit,  "  etc.,  most  banks  use  a  rubber  stamp,  leaving 
a  blank  for  the  signature. 

In  case  of  checks  payable  to  bearer,  the  safer  plan  is  to  write 
across  the  face  "  See  indorsement,  "  or  "For  deposit.  " 

§  346.  Certificate  of  Deposit.  A  man  wishes  to  deposit  a 
hundred  or  five  hundred  dollars  with  a  bank.  He  does  not 


e  Press  V.  Bank,  26  La.  Ann.,  744, 


THE  PAYING  TELLER.  185 

care  to  open  an  account  with  the  bank,  so  he  is  given  a  cer- 
tificate of  deposit.     See  form  §25 5. 

This  form  adds  to  a  bank's  original  undertaking  as  a  depos- 
itary and  binds  it  to  pay  to  the  bona  fide  holder,  who  returns 
it  properly  indorsed,  even  though  it  had,  for  any  reasons, 
already  paid  the  original  depositor. 

Of  course  many  forms  of  certificates  of  deposit  are  used, 
but  they  all  have  the  same  effect.  Here  is  a  form  that  was 
,held  to  be  a  certificate,  and  therefore  subject  to  the  statutes 
of  limitation  the  same  as  oral  contracts :  "  Received  from 
Henry  Bell,  Sixteen  hundred  dollars  on  deposit,  in  national 
currency." 

Much  argument  has  been  advanced,  pro  and  con,  to  show 
that  a  certificate  of  deposit  is  a  promissory  note.  The  Su- 
preme Court  of  Indiana  has  probably  come  nearer  than  any 
other  to  the  truth,  by  asserting  that  a  certificate  of  deposit  is 
a  written  contract,  and  that  no  parol  evidence  of  any  previous 
or  concurrent  agreement  is  admissible  to  contradict  or  vary 
the  legal  effect  of  it. 

§  347.  Negotiability  of  Certificate  of  Deposit.  A  cer- 
tificate of  deposit  is  negotiable  the  same  as  other  negotiable 
paper.  To  be  negotiable,  therefore,  it  must  contain  the 
negotiable  words,  "or  order,"  or  "or  bearer,"  must  be  payable 
in  money,  payable  absolutely,  and  contain  all  other  elements 
of  negotiable  paper.  Many  certificates  are  drawn  payable  in 
"current  funds,' '  and  whether  this  is  considered  as  meaning 
money,  the  student  is  directed  to  the  laws  of  his  own  state. 
It  is  considered  as  money  and  a  certificate  drawn  payable  in 
current  funds  is  negotiable  in  Iowa,  Tennessee,  New  York 
and  Wisconsin.  A  contrary  view  is  held  in  Pennsylvania, 
North  Carolina  and  Indiana. 

§  348.  Issue  not  Forbidden.  Neither  the  National  Bank 
Act  nor  the  statutes  of  most  of  the  states,  forbid  the  issue  of 
certificates  of  deposit. 

§  349-     Grace  and  Interest.     In  some  states  it  is  the  cus- 


i86  THE  BUSINESS  OF  BANKING. 

torn  of  banks  to  regard  time  certificates  of  deposit  issued  by 
them  as  payable  without  grace.  This  custom  is  valid  and 
though  a  certificate,  in  an  Iowa  case,  was  in  fact  negotiable 
and  entitled  to  grace,  the  collecting  bank  was  shielded  by  the 
custom  in  protesting  it  on  the  day  of  its  nominal  maturity. 
And  if  a  certificate  bears  a  specified  rate  of  interest  this  will 
continue  until  it  is  paid/ 

§  3  50.  A  Bank  Can  Take  its  Own  Certificate.  A  collecting 
bank  can  take  its  own  certificate  of  deposit  in  payment  for  a 
debt  it  is  collecting.  This  is  a  seeming  exception  to  the  rule 
that  an  agent  having  a  money-demand  for  collection  can  re- 
ceive nothing  but  money  in  payment. 

A  company  sent  a  note  and  a  mortgage  to  the  Monroe  (Iowa) 
County  Bank  for  collection.  Massey,  the  maker  of  the  note 
and  mortgage,  paid  by  delivery  to  the  bank  its  own  certificate 
of  deposit.  Before  remitting  to  the  plaintiff,  the  bank  failed, 
and  the  plaintiff  brought  suit  against  Massey  to  recover  the 
amount.  The  court  remarked  that  it  was  shown  in  evidence 
that  it  was  customary  for  all  banks  to  receive  their  certificates 
of  deposit  in  payment  for  claims  in  the  hands  of  the  bank 
for  collection.  But  it  was  not  necessary  to  show  that  the 
plaintiff  had  notice  of  such  custom.  Courts  take  judicial  no- 
tice of  the  general  customs  and  us?ges  of  merchants,  and  of 
whatever  ought  tobegenerally  known  within  the  limits  of  their 
jurisdiction,  and  the  system  by  which  nearly  all  banks  trans- 
act monetary  affairs  by  the  use  of  checks,  drafts  and  certifi- 
cates of  deposit,  and  without  the  actual  handling  of  bank 
notes  or  coin,  is  so  well  known  that  no  business  man,  much 
less  a  company  whose  sole  occupation  is  loaning  money, 
[business  of  plaintiff],  should  be  allowed  to  profit  by  pleading 
ignorance  of  it.  In  effect,  the  plaintiff  claimed  that  Massey 
should  have  presented  his  certificate  to  the  bank,  received  the 
money,  and  then  counted  it  back  to  the  bank  in  payment  for 

f  Haddo  k  v.  Citizens  National  Bank,  53  Iowa,  542;  Cordell  v.  Bank,  64  Mo. » 
600;  Bolles  on  Deposits,  §  259. 


THE  PAYING  TELLER.  187 

the  note.  The  law  does  not  require  any  such  vain  and  un- 
necessary formality  in  the  transaction  of  business. g 

§351.  Lost  Certificate.  If  a  certificate  is  lost  or  stolen 
before  maturity,  and  containing  a  blank  indorsement,  so  that 
afterward  an  innocent  holder  for  value  would  attain  a  good 
title  to  it,  the  original  owner  must  give  a  bond  of  indemnity,  if 
the  bank  pays  the  amount  to  him.  If  the  certificate  was  due 
at  the  time  of  its  loss  the  finder  or  subsequent  holder  took  it 
subject  to  all  the  equities  existing  between  the  original  parties, 
and  payment  to  the  original  holder  would  be  a  bar  to  another 
action  by  any  subsequent  bona  fide  or  other  holder.  In  such 
a  case  the  bank  is  not  entitled  to  a  bond  of  indemnity,  since  it 
would  be  under  no  legal  obligation  to  recognize  the  present 
•holder. 

§  352.  Payment  by  Insolvent  Bank.  If  a  bank  is  really 
/insolvent,  unknown  to  the  holder,  who  presents  his  check  and 
receives  payment  therefor,  the  bank's  assignee  cannot  recover 
the  amount.  The  fact  that  the  officers  know  of  the  insolvent 
condition  does  not  affect  the  case.  It  had  not  yet  been  judi- 
cially recognized. 

When  a  bank  is  declared  insolvent,  the  depositors  are 
general  creditors  and  share  with  the  other  creditors. 

§  353.  Uncollected  Checks.  If  a  bank  receives  a  check 
for  collection,  and  should  be  declared  insolvent  before  it  is 
collected  or  credited,  the  check  belongs  to  the  holder  and  not 
to  the  bank.  If  the  bank's  receiver  should  collect  such  a  check, 
it  would  belong  to  the  depositor  and  not  to  the  general  credit- 
ors. The  collection  not  being  made  until  after  insolvency,  the 
check  never  became  the  property  of  the  bank. 

§  354.  Presentation  of  Checks  for  Payment.  In  order 
to  fix  the  liability  of  the  drawer  and  indorsers,  the  holder 
must  present  the  check  for  payment  in  conformity  to  the  rules 
of  law.  The  law  presumes  that  when  the  drawer  gives  a 
check  he  will  also  provide  funds  at  the  bank  for  payment.  He 

*  Britain  &  American  Mortgage  Co.  v.  Tibbals,  63  Iowa,  468. 


i88  THE  BUSINESS  OF  BANKING. 

is  not  required  to  keep  funds,  indefinitely  for  that  purpose,  at 
the  place  where  the  check  is  payable,  for  this  would  be  a  risk, 
as  the  drawee  may  fail  and  the  funds  be  lost. 

§  355.  Reasonable  Time.  Checks  must  be  presented  for 
payment  within  a  reasonable  time.  What  is  a  reasonable 
time  is  a  matter  for  the  courts  to  decide  in  each  particular 
case. 

If  the  person  who  receives  the  check,  and  the  banker  on 
whom  it  is  drawn,  are  in  the  same  place,  the  check  must,  in 
the  absence  of  special  circumstances,  be  presented  for  pay- 
ment the  same  day,  or  at  latest,  the  day  after  it  is  received.1' 

If,  however,  the  holder  and  drawee  reside  in  different 
places,  in  the  absence  of  special  circumstances,  the  check 
must  be  forwarded  for  presentation,  at  the  latest,  on  the  day 
after  it  is  received ;  and  the  agent  to  whom  it  is  forwarded 
must  present  it,  at  the  latest,  on  the  day  after  he  receives  it.1 

It  is  well  understood  that  a  check  is  an  appropriation,  as 
between  the  drawer  and  the  holder,  to  the  latter,  of  so  much 
money  in  the  banker' s  hands.  Now  the  holder  may  allow  the 
money  to  remain  with  the  banker  and  the  drawer  cannot 
complain  unless  he  is  injured  thereby,  but  the  risk  of  allowing 
the  money  to  remain  in  the  banker's  hands  after  the  next  day 
after  he  receives  the  check  rests  upon  the  holder.  For  if  the 
demand  is  not  thus  regularly  made,  and  in  the  meantime  the 
banker  should  fail,  the  loss  would  fall  on  the  holder,  who,  by 
his  neglect,  will  make  the  check  his  own,  at  his  sole  risk. 
The  reason  for  this  stringency  is  that  a  check  is  intended  for 
immediate  payment,  and  not  for  circulation,  and  it  is,  there- 
fore, the  holder's  duty  to  present  it  for  payment  within  a  rea- 
sonable time,  or  suffer  the  consequences. 

hWear  v.  Lee,  87  Mo.,  358  ;  Simpson  v.  Ins.  Co.,  44Cal.,  139  ;  Schoolfield v. 
Moon,  9  Heisk. ,  171. 

'  Griffin  v.  Kemp,  46  Ind.,  172  ;  Burkhalter  v.  Bank,  42  N.  Y.,  538  ;  Bond  v. 
Warden,  i  Cholly.,  583;  Blair  v.  Wilson,  28  Gratt.,  165;  Woodruff  v.  Plant,  41 
Conn.,  344. 


THE  PAYING  TELLER.  189 

Of  course,  the  drawer  may  extend  the  time  for  presentment, 
by  either  expressed  or  implied  assent.  This  is  well  settled.1* 

§  356.  If  the  Drawer  is  not  Injured.  We  have  given  the 
duty  of  the  holder  to  present  the  check  within  a  reasonable 
time,  yet  the  drawer  must  show  that  he  has  suffered  some  loss 
or  injury  by  the  delay  or  he  will  not  be  relieved  from  payment. 
He  is  treated  as  a  principal  debtor,  and  is  not  discharged  by 
tthe  laches  of  the  holder  in  not  making  proper  presentation 
'thereof,  or  in  not  giving  him  notice  of  dishonor,  unless  he  has 
suffered  some  loss  or  injury  thereby,  and  then  only  pro  tanto. 
The  same  rule  holds  regarding  the  drawee's  liability.  If  the 
drawee  remains  solvent  and  the  funds  on  which  the  check  is 
drawn  are  not  affected  by  the  delay,  the  drawee's  liability  re- 
mains in  full  force. 

If  the  drawer  is  not  to  be  exonerated  from  paying  unless 
the  delay  has  caused  him  some  loss  or  injury,  the  question 
naturally  arises  as  to  when  the  holder  may  be  excused  from 
making  the  presentment  as  the  foregoing  rules  require. 

§  357.  Holder's  Excuse  for  Delay.  If  the  drawer  has  no 
funds  with  the  drawee,  the  holder  will  he  excused  from  making 
presentation.  If  the  drawer  withdraws  his  funds  from  the 
bank  before  the  holder  has  had  a  reasonable  time  for  present- 
iment, he  is  still  liable  for  payment  and  is  not  entitled  to  notice 
of  dishonor.  If  the  drawer  never  has  enough  money  with  the 
drawee  to  pay  the  check,  the  holder  will  be  excused  for  not 
presenting  it  for  two  years  or  more.  The  drawer  cannot  be 
injured  by  such  delay.  If  the  drawer  has  no  funds  in  the 
bank  when  he  draws  an  unexplained  check,  it  is  a  fraud,  and 
no  demand  of  payment  is  necessary  to  bring  an  action 
thereon. 

If  the  bank  becomes  insolvent  before  the  holder  has  had 
proper  time  to  make  presentment,  this  will  excuse  him  from 
doing  so.  If  one  draws  a  check  on  an  insolvent  bank,  or  one 

•Woodruff  v.  Plant,  41  Conn.,  344;  Alexander  v.  Birchfield,  7  Man.  &  G., 
1061;  Holmes  v.  Roe,  28  N.  W.,  864. 


igo  THE  BUSINESS  OF  BANKING. 

which  at  once  becomes  insolvent,  or  one  in  which  he  has  no 
funds,  or  one  not  indebted  to  him  even  on  a  balance  of  account, 
he  is  not  in  a  condition  to  be  injured  by  a  failure  to  receive  a 
notice  of  non-payment. 

We  have  seen  that  the  drawer  will  not  be  discharged  from 
payment  by  neglect  in  presenting  the  check  to  the  drawee,  yet 
the  holder  must  prove  affirmatively  that  the  drawer  has  not 
suffered  loss  or  injury 

§  358.  Indorsed  Checks.  The  presentation  for  payment 
must  be  made  within  a  reasonable  time  to  bind  the  indorsers 
for  non-payment.  Though  the  indorsers  may  not  have  been 
injured  by  the  delay,  yet  they  are  discharged.  The  presump- 
tion of  law  is  that  the  indorsees  interests  have  been  preju- 
diced by  the  delay,  and  his  liability  cannot  be  continued. 

§  359-  Notice.  In  regard  to  notice,  a  check  is  governed 
by  the  same  laws  as  an  inland  bill  of  exchange.  If  the  drawer 
has  no  funds  with  the  drawee,  he  is  presumed  to  know  it  and 
is,  therefore,  not  entitled  to  notice.  By  the  same  rule,  if  he 
has  funds  with  the  drawee  he  is  entitled  to  notice  of  non-pay- 
ment and  dishonor.  Delay  in  giving  him  notice  will  not  dis- 
charge him,  but  he  is  entitled  to  whatever  damages  he  may 
have  sustained.  After  proper  notice,  by  the  holder,  he  may 
bring  action  against  the  drawer  for  the  amount. 

To  charge  an  indorser  with  notice  of  presentation,  non-pay- 
ment and  protest,  the  notice  may  be  sent  by  a  messenger  or 
transmitted  through  the  mails.  The  holder  may  also  give 
personal  notice.  The  rules  regarding  these  notices  are  the 
same  as  those  regulating  all  negotiable  paper.  These  rules 
are  matters  of  statutory  regulation  and  the  student  is  referred 
to  the  code  of  his  own  state  for  more  definite  and  satisfactory 
information.  When  notice  to  the  indorser  is  properly  given 
he  is  held  liable,  otherwise  he  will  be  discharged. 

§  360.  In  what  Money  shall  the  Paying  Teller  Pay? 
i.  Counterfeit.  There  could  be  no  justice  in  compelling  a 
check  holder  to  receive  counterfeit  money  for  his  check  simply 


THE  PAYING  TELLER.  191 

because  he  did  not  detect  the  counterfeits  at  the  time  of  pay- 
ment. If  he  receives,  by  mistake,  anything  different  from 
what  was  due,  the  debtor  is  not  discharged,  and  he  may  return 
the  bad  money  within  a  reasonable  time  after  discovering  the 
forgery  and  demand  that  which  is  properly  due. 

2.  Worthless  Notes.     Banks  sometimes  pay  out  genuine 
bills  which  are  worthless  because  the  association  issuing  the 
same  has  failed,  and  also  for  other  reasons.     These  may  be 
returned  the  same  as  counterfeits,  even  though  neither  paying 
teller  nor  receiver  knew  that  they  were  worthless  at  the  time 
of  payment. 

3.  Legal  Tender  Money.      In  a  general  deposit,  the  title 
immediately  passes  to  the  bank  and  the  relation  between  the 
bank  and  depositor  is  as  debtor  and  creditor.   The  transaction 
is,  therefore,  not  affected  by  the  character  of  the  money  de- 
posited and  the  bank  becomes  liable  as  a  debtor,  and  the  debt 
can  be  discharged  only  by  such  money  as  is,  by  law,  a  legal 
tender.     Thus  if  a  deposit  is  made  in  bank  notes  of  a  bank 
which  fails  before  the  deposit  is  withdrawn,  or  if  made  in  the 
deposit  bank's  own  notes,  which,  at  the  time,  are  worth  only 
one-half  their  face  value,  the  depositor  may  demand  gold,  or 
silver,  or  other  legal  tender  money  in  payment.1" 

If  a  check  is  paid  in  what  are  supposed  to  be  legal  tender 
notes,  which  are  afterward  discovered  to  be  not  legal  tender, 
the  receiver  must  return  them  at  once.  He  must  use  speedy 
and  active  diligence  to  determine  their  character.  In  one 
case1  the  receiver  retained  the  bills  of  a  failed  bank  seven 
days,  and  in  another  casera  the  receiver  retained  the  notes 
nearly  six  weeks  without  making  inquiry.  In  both  cases  it 
was  held  that  the  bills  could  not  be  returned. 

§  361.  Paying  Collections.  If  a  bank  acts  as  collecting 
agent  and  mingles  such  collections  with  its  general  funds,  the 


k  Bank  r.  Wister,  2  Pet.,  318. 

'Cambridge  v.  Allenby,  6  Barn.  &  Cr.,  373. 

ni  Atwoodz/.  Cornwall,  28  Mich.,  336. 


192  THE  BUSINESS  OF  BANKING. 

money  collected  becomes  a  deposit  and  the  rules  for  general 
deposits  apply.  If  the  money  collected  was  depreciated  at 
the  time  of  receiving  it,  or  becomes  so  before  it  is  paid  to  the 
depositor,  the  bank  must  bear  the  loss  from  such  deprecia- 
tion." 

When  a  bank  acts  as  collection  agent  it  has  no  right  to  re- 
ceive other  than  legal  money,  or  bills  which  pass  as  money  by 
common  consent  of  the  community,  unless  some  special  au- 
thority be  given  to  receive  something  else. 

§  362.  "  Current  Funds. "  Often  a  check  or  bill  is  drawn 
payable  in  "current  funds."  Such  a  check  is  payable  in  cur- 
rent money  ;  money  which  is  circulating  at  its  face  value- 
without  any  discount.  This  means  coin  or  its  equivalent — 
good  money — and  the  holder  can  demand  coin  or  its  equiva- 
lent. A  check  must  be  payable  in  money  or  it  does  not  come 
within  the  laws  governing  checks.  And  a  paper  in  the 
form  of  a  check  drawri  on  a  closed  bank  is  a  mere  assignment 
of  a  deposit,  and  not  a  check  at  all. 

§  363.  The  Statute  of  Limitations.  When  a  bank  receives 
deposits  to  be  drawn  out  by  means  of  checks,  there  is  an  im- 
plied agreement  that  the  bank  is  a  mere  custodian  of  the 
money  and  is  not  in  default,  and  therefore  not  liable  for  dam- 
ages until  demand  of  payment  has  been  made,  and  payment 
refused.  The  bank  does  not  agree  to  be,  and  is  not  under  the 
obligations  of  an  ordinary  debtor.  It  need  not  go  after  the 
creditor  and  return  the  deposit.  This  being  the  case  the  stat- 
ute of  limitations  does  not  begin  to  operate  until  demand  of 
payment  has  been  made  at  the  bank,  and  payment  refused. 

§  364.  The  statute  does  not  begin  to  run  on  a  certified 
check  until  it  is  presented  for  payment.  When  the  check  is 
certified  the  amount  is  taken  from  the  drawer's  account  and 
placed  to  the  credit  of  the  check.  The  holder  becomes  a 
depositor  for  the  amount  of  the  check,  and  has  about  the 
same  rights  as  any  other  depositor. 

n  Bank  v.  Rushmore,  28  111.,  463. 


THE  PAYING  TELLER.  193 

Nearly  the  same  rule  pertains  regarding  a  certificate  of  de- 
posit. The  statute  begins  to  run,  not  when  issued,  but  from 
the  time  when  it  is  presented  for  payment. 

When  a  bank  discontinues  business  or  suspends  payment  of 
specie,  such  action  will  set  the  statute  running  against  the 
depositor  from  the  time  he  learns  of  the  event. 

A  notice  by  the  bank,  published  in  pursuance  of  law,  of 
unclaimed  deposits,  revives  the  debt  even  though  already 
barred  by  the  statute,  and  it  begins  to  run  again  from  the 
date  of  such  publication. 

§  365.  A  Banker's  Lien.  The  general  rule  regarding  a 
banker's  lien  is  that  when  a  depositor  is  indebted  to  a  bank 
by  any  matured  indebtedness,  it  has  the  right  to  apply  his 
deposit  to  the  discharge  of  the  debt.  This  right  is  not  recog- 
nized everywhere  and  the  student  is  referred  to  his  own  state 
laws  in  regard  to  the  matter.  This  is  the  same  as  is  usually 
known  as  a  general  lien,  and  it  requires  strong  evidence,  or  a 
settled  and  uniform  usage,  or  a  particular  mode  of  dealing 
between  the  parties  to  establish  it. 

The  lien  of  one  bank  for  a  balance  due  from  another  bank 
will  cover  notes  and  other  securities  sent  to  it  for  collection, 
which,  on  their  face,  belong  to  the  sender.0 

So  when  an  attorney  left  a  note  at  a  bank  for  collection 
without  stating  for  whose  account,  the  bank  collected  it  and 
applied  it  to  a  debt  due  from  the  attorney  to  the  bank.  A 
short  time  afterward  the  attorney  failed,  and  the  bank  in- 
cluded the  note  in  its  settlement  with  him.  The  owner  learn- 
ing that  the  note  had  been  collected  sued  the  bank  for  the 
proceeds,  but  it  was  held  that  the  bank  had  exercised  its  right 
of  lien  properly.5 

The  rule  given  above  for  the  collection  of  a  note  needs 
some  qualification,  as  in  the  case  of  a  note  indorsed  "for  col- 
lection" ;  this  gives  notice  that  the  indorser  is  entitled  to  the 

°Bank  v.  Bank,  i  How. ,  234. 
P  Wood  v.  Bank,  120  Mass.,  358. 


194 


THE  BUSINESS  OF  BANKING. 


money  and  the  proceeds  could  not  be  the  subject  of  a  lien,  such 
as  we  have  described. 

If  a  depositor  is  declared  a  bankrupt,  his  deposit  is  a  secu- 
rity for  the  amount  due  the  bank,  and  may  be  taken  for  such 
payment  pro  tanto.  This  is  on  the  principle  of  mutual 
credits. 

§  366.  A  Set-Off.  A  bank  owes  B  thirty  dollars,  and  it 
also  has  a  demand  against  him  for  thirty  dollars.  It  has  the 
right  to  set-off  its  debt  to  him  against  the  debt  due  from  him. 
The  right  of  a  set-off  is  given  by  statute  and  exists  every- 
where. Its  object  is  to  enable  parties  having  demands 
against  each  other  to  settle  them  with  the  least  possible 
trouble.  To  set-off  a  demand,  however,  the  debts  must  be 
due  between  the  same  parties  in  the  same  right. 

If  a  bank  becomes  insolvent  its  debtors  may  set-off  its  in- 
debtedness to  them  against  their  own  to  the  bank.  In  the 
same  way  a  depositor  of  a  failed  bank  may  set-off  the  amount 
of  deposit  against  his  note  held  by  the  bank.q 

If  a  depositor  becomes  insolvent  and  is  indebted  to  the 
bank  on  notes,  his  deposit  may  be  set-off  against  the  amount 
of  his  notes/. 

But  a  bank  will  not  be  permitted  to  set-off  a  debt  due  to  it 
from  a  holder  of  a  check  when  presenting  it  for  payment.  The 
holder  of  a  check  is  usually  regarded  as  an  agent  for  the 
drawer  to  obtain  from  the  bank  the  money  due  from  the 
drawer.  A  check  is  not  absolute  payment,  only  a  means  of 
getting  the  money. 

In  some  cases  it  has  been  decided  that  equity  will  allow  and 
enforce  a  set-off  of  a  debt  not  yet  due  against  a  depositor's 
account.  For  instance,  if  a  maker  of  a  note,  which  is  held  by 
a  bank,  dies  before  the  maturity  of  the  note  and  his  estate  be 
insolvent,  the  bank  has  a  right,  through  equity,  to  set-off 

"Receivers  v.  Light  Co.,  23  N.   J.,  283;  See  also  Receiver  v.  Patterson,  3 
Zabriskie,  283;  and  Yardley  v.  Clothier,  Cir.  Ct.  Perm.,  1892. 
r  Kips>.  Bank,  10  Johns,  63. 


THE  PAYING  TELLER.  195 

enough  of  his  deposit  with  the  bank  to  pay  the  note,  even 
though  there  are  claims  of  superior  dignity  against  the  estate. 
It  was  held  that  the  deposit  was  not  a  part  of  the  general 
assets  of  the  depositor,  but  only  the  excess  above  what  was 
necessary  to  pay  the  note  due  the  bank.  The  bank  was 
debtor  only  for  the  difference.  Although  the  bank  could  not 
at  law  set-off  an  unmatured  debt,  yet  upon  proof  of  insolvency 
or  danger  of  insolvency  equity  will  stop  the  payment.  There 
can  be  no  question  but  that  the  bank  had  the  right  to  stop 
the  amount  in  its  own  hands,  upon  showing  to  a  court  of 
equity  that  the  maker  was  insolvent.8 

§  367.  Lien  on  Bank  Stock.  There  can  be  no  lien  on  the 
stock  of  a  stockholder  to  secure  a  debt  due  to  a  national  bank. 
Neither  by  the  National  Bank  Act  nor  by  the  by-laws,  can  a 
national  bank  create  such  a  lien.  Even  though  an  agreement  is 
made  with  a  stockholder  that  his  stock  is  to  be  pledged  to  secure 
the  bank  on  future  indebtedness,  there  is  no  lien.  Such  liens 
are  contrary  to  the  whole  policy  of  the  Bank  Act.4  But  a  na- 
tional bank  can  hold  the  cash  dividends  of  a  stockholder 
pledged  for  his  debt." 

In  a  state  bank  a  lien  on  stock  may  be  created  by  charter, 
statute,  or  by-laws.  But  the  directors  have  no  power  to  dele- 
gate authority  to  the  officers  of  the  bank  to  create  a  lien;  such 
authority  must  come  from  one  of  the  sources  mentioned. 

The  right  to  pledge  stock  depends  largely  on  the  charter 
and  by-laws,  which  relate  to  the  holding,  pledging  and  trans- 
ferring of  stock.  Where  a  bank's  stock  certificates  contained 
the  provision  that  they  were  "transferable  at  the  office  of  the 
company  in  person,  or  by  attorney,"  C.  borrowed  money  from 
Mrs.  Pinson,  on  the  stock  owned  by  him,  and  indorsed  them 
as  follows  :  "  For  value  received  I  assign  this  certificate  of 
stock  to  Mrs.  Pinson,  and  authorize  her,  as  my  attorney,  to 

s  Administrator  v.  Thornton,  3  Leigh,  695. 

*  Knight  v.  Bank,  3  Cliff.,  429;  Bank  v.  Lanier,  u  Wallace,  369. 

uHager  v .  Bank,  63  Me.,  509. 


196  THE  BUSINESS  OF  BANKING. 

demand  and  have  transfer  of  the  same  made  to  her  on  the 
books  of  the  company."  When  Mrs.  Pinson  presented  the 
stock  for  transfer  the  bank  refused,  stating  that  C.  owed  the 
bank  and  that  it  had  a  lien  on  the  stock  for  the  debt.  It  was 
shown  that  at  the  time  of  the  assignment  Mrs.  Pinson  had  no 
notice,  either  actual  or  constructive,  of  the  lien ;  and  that  by 
the  regulation  regarding  the  mode  of  transfer  she  had  a  right 
to  presume  that  it  was  all  right.  It  was  held  that  she  was  an 
innocent  purchaser  for  value,  without  notice  of  the  bank's 
lien,  and  she  held  the  stock/ 

§  368.  Payment  of  a  Depositor's  Notes.  Notes  are  often 
drawn  payable  at  the  drawer's  bank,  and  the  general  rule  is 
that  such  a  note  is  equivalent  to  a  check  drawn  on  the  bank 
by  the  depositor,  and  being  thus  a  draft  on  the  institution,  in 
favor  of  the  holder,  the  bank's  duty  to  pay  it  is  hardly  less 
imperative  than  its  duty  to  pay  the  depositor's  checks.  This 
rule  is  not  recognized,  however,  in  Massachusetts,  Illinois,  nor 
Indiana.  In  all  cases  where  the  bank  pays  such  notes  it  has 
a  right  to  demand  a  surrender  of  the  note  before  payment. 

Many  times  the  depositor  leaves  money  at  the  bank  for  the 
purpose  of  paying  his  notes  payable  at  the  bank.  If  he  does 
this  and  gives  particular  instructions  as  to  the  payments  to  be 
made,  such  directions  must  be  followed.  In  all  instances 
where  a  maker  of  a  note,  payable  at  a  bank,  whether  he  be  a 
depositor  or  not,  leaves  money  at  the  bank  for  payment,  he  is 
discharged  from  all  further  liability.  The  bank  then  becomes 
directly  liable  to  the  holder. 

While  a  bank  has  a  right  to  apply  a  depositor's  funds  to  the 
payment  of  his  note,  it  has  no  right  to  make  any  such  appli- 
cation before  the  note  has  matured — not  before  the  last  day 
of  grace. 

If  a  bank  discounts  a  note  for  a  depositor  and  payment  is 
not  made  when  the  note  is  due,  it  may  apply  his  deposit,  or 
one  subsequently  made,  whether  in  the  ordinary  way  or  by 

vBank^.  Pinson,  58  Miss.,  422. 


THE  PAYING  TELLER.  197 

leaving  business  paper  for  collection,  to  the  payment  of  such 
obligation." 

§  369.  Gold.  A  paying  teller  ought  to  have  some  infor- 
mation regarding  the  production,  weight  and  bulk  of  gold  and 
silver,  and  we  here  present  a  few  of  the  leading  facts  per- 
taining to  such  metals.  Since  the  earliest  times  there  have 
been  produced  in  the  world  about  $14,500,000,000  worth  of 
gold,  and  of  this  there  is  only  a  little  more  than  $8,000,000,000 
in  the  world  at  the  present  time.  What  has  become  of  the  other 
$6,000,000,000  ?  is  almost  as  hard  to  answer  as  the  question, 
where  do  the  pins  go  ? 

In  ancient  history  we  read  of  innumerable  ornamentations, 
which  were  said  to  be  made  of  pure  gold;  of  the  temples  that 
were  richly  embellished  with  solid  gold  ;  of  the  sacrifices  of 
golden  vases,  bowls,  images,  and  many  other  articles  of  pure 
gold.  It  is  said  that  when  Croesus  was  about  to  go  to  war 
against  Cyrus  the  Great,  that  in  order  to  propitiate  the  god, 
he  sent  to  the  oracle  of  Apollo,  at  Delphi :  117  ingots  of  pure 
gold,  nine  inches  thick  and  from  nine  to  eighteen  inches  long; 
a  life-size  figure  of  a  lion  of  fine  gold;  a  golden  tripod;  a  statue 
of  a  woman  of  pure  gold,  four  and  a  half  feet  high;  neck- 
laces and  bows  and  girdles  of  gold  by  the  dozen.  Where  is  all 
this  golden  jewelry  and  these  ancient  articles  of  solid  gold  ? 

Gold,  as  a  metal,  has  some  very  peculiar  characteristics  which 
are  not  fully  understood  by  even  the  eminent  scientists  who 
give  it  the  most  attention/  Some  philosophers  hold  to  the 
opinion  that  it  evaporates.  Though  the  most  completely 
proof  against  rust  and  fire  of  all  the  metals,  it  is,  at  the  same 
time,  wonderful  stuff  for  wearing  out.  And  this  element  of 
wearing  out  seems  to  answer  the  question  of  where  it  goes. 
As  every  one  knows,  a  finger  ring  of  gold  will  wear  out  in  only 
a  few  years ;  a  gold-plated  chain  will  after  a  while  show  the 
under  metal,  the  gold  having  worn  away. 

w  Muench  v.  Bank,  n  Mo.,  App.,  144. 

r  Many  of  the  ideas  contained  in  §  369  to  ^  390,  inclusive,  have  been  taken 
from  Patten's  work  on  Practical  Banking. 


198  THE  BUSINESS  OF  BANKING. 

§  370.  Gold  in  a  Bulk.  If  all  the  gold  in  the  world  was 
dumped  in  one  solid  mass  it  would  make  a  pile  fifty  feet  square 
and  twenty-six  feet  high.  These  figures  will,  no  doubt,  sur- 
prise many  who  think  the  pile  ought  to  be  much  larger,  but 
such  a  pile  would  contain  the  entire  $8,000,000,000 — the 
world's  stock  of  gold — coin,  jewelry  and  all.  It  would  tip 
the  scales  at  about  30,000,000  pounds. 

§  371.  Carat.  The  word  carat  comes  from  a  Greek  word 
meaning  berry.  This  berry  was  used  by  the  Greeks  as  a 
weight  of  four  grains  ;  and  in  this  country  and  in  England, 
when  carat  is  used  by  the  jewelers  to  express  weight  it  means 
four  grains.  In  other  countries  it  varies  from  this.  It  is  used 
in  weighing  pearls  and  precious  stones.  The  term,  however,  is 
generally  used  to  express  the  purity  of  gold.  The  whole  mass 
is  divided  into  twenty-four  parts  and  is  called  gold  of  as  many 
carats  as  there  are  parts  of  pure  gold.  For  e.  g.,  a  ring  is  said 
to  be  eighteen  carat  fine,  if  eighteen  of  the  twenty-four  parts 
composing  it  are  of  pure  gold.  Pure  gold  is  a  very  soft  sub- 
stance, and  cannot  well  be  used  in  jewelry,  such  as  watches, 
chains,  etc.,  until  it  is  hardened  by  an  alloy  to  about  fourteen 
or  sixteen  carats.  Even  when  used  as  a  coin  it  must  be  hard- 
ened somewhat  or  it  would  wear  out  quickly.  The  American 
gold  coins  are  alloyed  with  copper  to  a  standard  of  2 1 .6  carats. 
The  gold  coins  of  some  countries  are  alloyed  with  silver.  The 
gold  coins  of  France  and  England  have  a  standard  of  22  car- 
ats. 

§  372.  Relative  Value  of  Gold  and  Silver.  The  annual 
production  of  gold  is  about  $100,000,000,  but  since  1861  there 
has  been  a  steady,  constant  decrease  in  the  production,  while 
we  find  that  the  consumption  is  continually  increasing. 

The  price  of  all  the  products  of  the  world  is  governed  largely 
by  the  law  of  supply  and  demand,  and  this  is  no  less  true  of 
gold  than  other  products.  The  increased  demand  and  de- 
creasing supply  is  the  cause  of  the  rising  tendency  in  the  price 
of  gold. 


THE  PAYING  TELLER.  199 

On  the  other  hand  silver  has  been  steadily  falling  in  price 
for  a  long  time,  until  our  silver  dollar  is  worth  only  about 
fifty  or  fifty-five  cents  on  the  world's  exchange.  The 
reason  for  this  fall  is  in  the  fact  that  the  production  has  been 
greater  than  the  demand. 

Another  reason  for  this  change  is  that  less  silver  is  used  in 
the  arts  and  the  mechanics  than  formerly.  This  is  particularly 
true  in  European  countries.  Business  depression  decreases  the 
use  of  silverware  in  families.  Then  again  the  growing  custom 
of  using  silver-plated  ware  instead  of  solid  silver  articles  has 
much  to  do  with  the  change.  There  seems  to  be  no  need  of 
buying  solid  silverware  to  tempt  thieves,  when  plated  ware 
looks  as  well  and  costs  much  less.  But  all  the  while  the  de- 
mand for  gold  to  be  used  in  the  arts  is  increasing.  It  is 
stated  that  in  these  days  of  poor  teeth  there  is  on  an  average 
a  dollar's  worth  of  gold  in  the  mouth  of  every  adult;  conse- 
quently every  generation  buries  in  the  cemeteries  nearly  a 
billion  dollars'  worth  of  gold. 

§  373.  The  Teller's  Specie.  The  gold  in  our  banks  is 
generally  in  charge  of  the  paying  tellers,  and  is  piled  in  bags 
containing  $5,000  each.  Each  $5,000  weighs  twenty-two 
pounds,  and  the  bags  taken  in  by  the  paying  teller,  from 
whatever  source,  are  by  him  weighed  and  examined.  That  is, 
it  must  be  turned  out  into  a  scale,  weighed  and  examined  to 
see  if  it  is  the  genuine  article,  and  poured  back  into  the  bag. 
It  would  not  be  safe  to  store  it  away  in  a  bank  vault  without 
making  such  an  examination.  If  a  teller  looks  only  at  the 
tag  and  not  at  the  contents,  it  is  difficult  to  say  whether  he 
is  receiving  gold  or  copper. 

However,  in  large  cities  bags  of  gold  and  packages  of 
money  are  transferred  from  bank  to  bank  without  examina- 
tion, as  verified  by  the  following  from  an  interview  with  Bank 
Examiner  Sturgis,  of  Chicago  : 

"  The  First  National  Bank  of  Chicago  has  about  $8,000,000 
in  cash.  I  usually  count  it  between  2  o'clock  on  Saturday 


200  THE  BUSINESS  OF  BANKING. 

afternoon  and  midnight.  Counting  the  cash  of  a  bank  is 
really  the  easiest  of  an  examiner's  duties.  There  is  one  little 
package  in  the  First  National  Bank  of  Chicago  not  much 
larger  than  an  ordinary  sized  novel,  that  contains  $1,050,000. 
That  package  has  been  undisturbed  for  one  year,  has  had  my 
seal  on  it,  I  think,  for  longer  than  that.  It  is  made  up  of 
$10,000  gold  certificates.  The  reserve  cash  of  all  the  banks, 
and  it  is  by  far  the  largest  share  of  their  cash,  is  very  rarely 
touched,  is  made  up  of  very  large  bills  or  of  bags  of  coin,  and 
may  rest  in  one  place  for  years.  I  have  no  doubt  there  are 
packages  of  currency  in  some  of  the  banks  which  have  not 
been  touched  for  five  years.  It  is  never  necessary  to  undo 
these  packages.  They  are  all  under  seal,  and  the  bank  whose 
seal  is  attached  guarantees  them.  They  are  called  Clearing- 
house packages,  and  are  used  to  pay  balances.  On  some  of 
these  packages  besides  my  own  certificate  are  the  seals  of 
a  half  dozen  banking  institutions.  Each  seal  contains  a  guar- 
antee to  a  certain  date.  As  that  date  approaches,  if  the 
package  has  not  been  opened,  the  guarantee  of  correctness  of 
count  is  renewed  by  an  official  from  the  bank  first  issuing  it.  It 
is  the  same  way  in  regard  to  bags  of  coin,  seals  being  on  all 
of  them,  sometimes  a  treasury,  sometimes  a  bank,  sometimes 
the  bank  examiner's  seal." 

§  374.  Light  Weight  Coins.  Then  the  weight  often 
varies,  but  it  must  be  only  slightly.  If  a  $5,000  bag  is  found 
to  fall  one-half  of  one  per  cent,  short  of  twenty-two  pounds, 
the  paying  teller  must  hunt  out  the  light  weight  coins  and 
seek  reclamation  from  the  party  paying  them  in.  If  the 
gold  belongs  to  the  bank,  and  there  is  no  one  to  look  to  for 
the  loss  on  the  light  weights,  they  are  taken  to  specie  dealers 
and  sold  for  what  they  will  bring.  A  teller  has  little  difficulty 
in  detecting  the  light  coins,  which  almost  invariably  show 
their  lightness  by  their  smooth  appearance. 

When  a  light  coin  gets  into  the  hands  of  the  United  States 
Treasurers,  the  law  compels  them  to  stamp  it  "short"  and 
thus  end  its  travels. 


THE  PAYING  TELLER.  201 

§  375.  Clipping.  There  are  men  who  will  do  almost  any- 
thing to  make  a  living  in  any  but  an  honest  way.  Clipping 
consists  in  clipping  or  cutting  pieces  out  of  gold  coins. 

§  376.  Splitting  and  Sweating.  Of  course  there  are  sev- 
eral ways  of  debasing  gold  coins  and  one  way  that  it  is  some- 
times successfully  done  is  by  splitting  the  coins  and  taking  gold 
from  each  side,  and  replacing  lead  or  some  other  heavy  metal 
and  deftly  soldering  the  two  pieces  together  again. 

Sweating  is  a  very  ancient  mode  of  cheating  and  is  easily 
accomplished.  It  is  done  by  placing  gold  coins  in  a  strong 
bag  and  patiently  shaking  them  together  until  the  friction  of 
rubbing  together  wears  off  enough  gold  dust  to  give  the 
sweater  a  good  round  profit. 

The  natural  and  unavoidable  loss  of  gold,  resulting  from  the 
ordinary  handling  of  the  bags,  gives  one  a  good  idea  of  the 
profit  to  be  derived  from  the  sweating  process.  In  pouring  a 
bag  of  gold  into  the  scales  and  back  again  into  the  bag  there 
will  be  quite  a  sprinkling  of  gold  dust  left  on  the  bottom  of 
the  scales. 

It  seems  that  gold  cannot  be  handled  or  moved  without  more 
or  less  loss  from  this  cause,  so  that  this  feature  of  gold  coin 
becomes  a  very  interesting  one.  It  is  estimated  that  there  is 
a  loss  of  from  $85  to  $90  from  abrasion,  on  every  million 
dollars  of  gold  shipped  across  the  ocean.  That  is,  when  a 
gold  shipper  sends  a  million  dollars  of  gold  across  the  ocean, 
he  calculates  that  there  will  occur  a  loss  of  from  $85  to  $90 
from  the  natural  rubbing  of  the  coins  during  the  voyage. 

§  377.  The  Care  of  Gold.  An  experienced  teller,  of  course, 
knows  that  gold  is  easily  worn  and  defaced,  and  that  it  must 
be  handled  very  carefully  and  in  just  the  right  way.  When 
put  into  the  $5,000  bags  it  must  not  be  tied  too  tightly.  Space 
must  be  left  between  the  string  and  the  gold  so  that  the  coin 
will  have  room  to  swim  around  loosely  whenever. the  bag  is 
moved.  If  tied  tightly  the  coins  will  cut  and  grind  each  other 
and  likewise  strain  harder  upon  the  bag.  It  is  quite  an  art  to 
properly  bag  gold. 


202  THE  BUSINESS  OF  BANKING. 

In  banks  in  eastern  cities  the  paying  teller  often  does  up  the 
parcels  of  gold  to  be  shipped  to  foreign  countries.  In  ship- 
ping to  England,  double  eagles  are  usually  sent.  These  are 
selected  because  there  is  less  shrinkage  on  them  than  on  small- 
er coin.  These  are  packed  in  small,  but  strong  pine  boxes, 
or  kegs  about  the  size  of  nail  kegs.  In  either  case  the  parcels 
are  securely  sealed.  Some  shippers  seal  the  boxes  by  sinking 
the  screws  deeply  in  the  boxes  and  then  covering  them  with 
their  wax  seals. 

§378.  Gold  Shipments.  When  gold  is  shipped  to  other 
countries — to  England,  for  example — it  is  useless  as  money. 
In  England  they  have  no  such  things  as  dollars  and  cents  ;  it 
is  pounds,  shillings  and  pence.  Their  coin  in  this  country  and 
our  coin  there,  is  uncurrent  and  becomes  simply  merchandise. 
Uncurrent  coin  is  taken  to  dealers  in  specie  who  sell  it  to 
manufacturing  jewelers,  to  travelers  who  are  going  to  countries 
where  such  coin  is  current,  or  to  the  Mints  where  it  is  recast 
into  current  coin. 

If  bullion  could  be  obtained  we  would  send  it  instead  of  the 
American  coined  gold,  but  in  this  country  it  is  almost  impos- 
sible to  obtain  bullion  for  shipment.  In  England  the  shipper 
can  get  bullion  gold,  for  the  Bank  of  England  has  immense 
stocks  of  it,  from  which  are  drawn  the  shipments  of  gold  that 
England  makes  to  all  parts  of  the  world. 

§  379.  How  Gold  is  Shipped.  Gold  shippers  do  not  go 
to  the  Sub-Treasury  for  their  gold,  though  of  course,  if  they 
have  gold  certificates  these  may  be  presented  and  the  precious 
metal  received  for  them.  It  is  the  Bank  of  North  America 
that  furnishes  the  great  bulk  of  gold  for  shipment,  and  has 
become,  by  a  sort  of  arrangement  with  the  banks,  a  general 
depot  for  gold  deposits.  The  bags,  which  are  made  at  a  fac- 
tory in  connection  with  the  bank,  are  of  strong  canvas  and 
hold  $5,000.  In  the  rear  of  the  bank  the  packing  is  witnessed 
by  a  representative  of  the  shipper.  Ten  bags  are  placed  in 
a  stout  keg  of  hardwood,  strongly  bound  with  iron  hoops. 


THE  PAYING  TELLER.  203 

These  kegs  are  also  made  at  the  bank.  When  the  keg  is 
filled  and  the  head  put  in,  a  tape  check  is  applied;  four  holes 
are  bored  through  the  ends  of  the  staves  above  the  head  and 
bottom  of  the  keg,  and  red  tape  run  through,  the  ends  being 
brought  together  at  the  center  of  the  head  where  they  are 
secured  with  a  great  seal  of  wax  bearing  the  shipper's  name. 
The  kegs  are  then  carted  to  the  ship's  landing.  Some  ship- 
pers insure,  some  do  not.  Often  a  large  shipment  of  one  or 
two  million  dollars  will  be  sent  by  half  a  dozen  different  steam- 
ers— the  precaution  being  not  to  trust  too  much  to  one  boat. 

When  gold  bars — bullion — is  shipped,  it  is  duly  stamped 
with  the  weight  and  fineness  in  the  United  States  Assay  office 
adjoining  the  Sub-Treasury  building  at  New  York.  The 
same  kegs  are  used,  but  instead  of  the  canvas  bags,  closely 
packed  sawdust  is  used  to  keep  the  bars  apart,  and  the  loss 
from  abrasion  is  greatly  reduced. 

There  seems  to  be  very  little  danger  of  robbery  in  trans- 
porting gold  through  the  streets  of  a  great  city.  A  thief  has 
no  chance  at  all.  The  instructions  to  the  treasure-guarders, 
who  accompany  the  shipment,  is  to  shoot  to  kill  at  the  first 
assurance  that  a  plan  of  robbery  is  about  to  be  attempted. 
A  rush  for  such  gold  would  be  piracy  on  dry  land,  and,  in  the 
modern  code,  piracy  means  death.  Anyway  the  Habitual 
Vagrant  Act  enables  the  police  to  arrest  any  crook  or  bad 
character  at  any  time,  and  have  him  up  for  an  explanation 
before  the  police  judge,  and  this  is  what  is  done  when  any 
suspicious  character  is  found  in  the  jewelry  or  banking 
section. 

Another  important  phase  of  the  specie  shipment  problem  is 
the  transportation  of  valuables  across  the  continent.  The 
government  depends  upon  the  private  express  companies  for 
this  work.  For  a  quarter  of  a  century  the  Adams  Express 
company  had  a  monopoly  on  handling  the  United  States'  cash. 
The  several  Mints  and  the  various  Sub-Treasuries  are  always 
transporting  gold  or  silver  in  coin  and  bullion.  The  Adams 


204  THE  BUSINESS  OF  BANKING. 

Express  charged  twenty-five  cents  for  $1,000  handled,  but  the 
United  States  Express  put  in  a  bid  for  fifteen  cents  per  $1,000 
and  now  has  the  contract.  This  contract  is  to  cover  the 
transfer  of  all  sorts  of  securities,  mutilated  money,  coin, 
bullion,  etc.,  between  the  Treasury  and  the  national  banks  of 
the  country.  The  express  company  gives  a  bond  of  $500,000 
to  secure  the  government,  and  it  makes  good  all  losses. 

§  380.     Silver  Shipments.    The  paying  teller  is  sometimes 
required  to  pay  out  silver  coins  for  shipment.      Most  of  our 
silver  shipments  of  late  years,  however,  have  been  in  the  shape  | 
of  bricks.     Sometimes  a  shipment  of  silver  coin  goes  to  China 
to  pay  for  teas,  etc. 

The  Chinese  will  have  nothing  but  silver,  and  it  must  be  of 
just  the  right  kind  or  they  will  not  take  it.  At  one  time  they 
would  have  nothing  but  the  Mexican  dollar,  and  our  own  trade 
dollar  was  prepared  to  suit  their  taste.  A  Chinese  coin  tester 
exhibits  wonderful  skill  in  judging  of  the  merits  of  a  coin.  He 
will  pass  a  keg  of  silver  dollars  through  his  hands  with  great 
rapidity,  rejecting  the  light  weight  and  otherwise  defective 
coins,  by  mere  sense  of  touch. 

§  381.  Test  for  Gold  and  Silver.  The  tests  given  here 
are  those  used  by  the  United  States  Mints.  Use  the  liquids 
as  near  the  edge  of  the  suspected  coin  as  possible,  that  being 
the  part  most  worn.  The  preparation  will  have  no  effect  on 
a  genuine  coin,  but  a  drop  of  it  will  produce  an  easily  distin- 
guished action  on  a  counterfeit.  If  the  coin  is  heavily  plated, 
scrape  slightly  before  using. 

For  Gold.  Strong  aqua  fortis  (368)  39  parts;  aqua  regia 
I  part;  water  20  parts. 

For  Silver.  Twenty-four  grs.  lunar  caustic;  30  drops  of 
aqua  fortis;  I  oz.  of  water. 

§  382.  Coining  Silver  Dollars.  The  first  silver  dollar  was 
coined  in  1794  under  the  act  of  April  2,  1792,  and  weighed  416 
grains,  297  parts  pure  to  36  parts  alloy.  Since  then  the  coin 
has  undergone  many  changes,  and  been  much  improved.  The 


THE  PAYING  TELLER.  205 

issue  of  1804  is  the  scarcest  of  the  American  silver  dollars. 
There  are  only  six  or  seven  of  them  in  existence,  and  they  are 
called  the  "  King  of  American  Rarities."  The  story  goes  that 
almost  the  entire  coinage  of  1804  was  being  shipped  to  China 
and  the  vessel  and  all  on  board  was  lost  at  sea. 

§  383.  The  National  Mottoes.  The  motto  E  Pluribus 
Unum,  found  on  many  coins,  was  never  authorized  by  law, 
and  was  first  used  on  a  half  penny  struck  in  New  Jersey  in 
1786.  It  was  placedon  gold  coin  in  1/92,  but  was  dropped 
from  most  coin  between  1836  and  1866.  It  was  revived 
again  with  the  issue  of  the  trade  dollar  in  1873. 

"In  God  We  Trust"  In  1 86  4,  plans  were  submitted  for  a 
new  3-cent,  2-cent  and  I -cent  piece,  on  which  it  was  proposed 
to  place  the  following  mottoes  in  accordance  with  the  sugges- 
tion of  some  minister  who  thought  the  coins  should  recognize 
the  Deity:  "Our  Country,  Our  God,"  "God  our  Trust."  Mr. 
Chase,  the  Secretary  of  the  Treasury,  suggested  a  change  to, 
"In  God  We  Trust,"  and  this  appeared  for  the  first  time  on  the 
2-cent  piece  issued  in  1864. 

§384.  «M"  on  the  Silver  Dollar.  The  minute  letter 
•*M"  stamped  on  Liberty  just  at  the  point  where  the  front 
lock  of  hair  ends  on  the  neck,  does  not  stand  for  "mint,"  as 
many  suppose,  nor  is  it  an  evidence  that  the  coin  is  genu- 
ine. It  stands  for  Morgan — Geo.  T.  Morgan,  who  originated 
the  design.  He  also  stamped  the  letter  "  M  "  on  the  reverse 
Aide  on  the  left  half  of  the  loop  of  ribbon  tied  around  the 
wreath. 

Mr.  Morgan  selected  as  a  model  for  the  head  of  Liberty,  a 
young  school  teacher,  Miss  Anna  Williams,  of  Philadelphia, 
who  had  the  "purely  American  features." 

§  385.  The  Dollar  Sign.  Several  theories  are  advanced  as 
to  the  derivation  of  the  dollar  mark.  First,  that  it  came 
from  the  letters  "  U  and  S,"  which  was  affixed  to  the  currency 
of  the  new  United  States.  These  initials  were  afterward  run 
together  so  as  to  form  the  sign.  Second,  that  it  is  derived 


206  THE  BUSINESS  OF  BANKING. 

from  the  representation  of  the  Pillars  of  Hercules,  consisting 
of  two  pillars  and  a  scroll.  The  old  Spanish  "pillar  dollar" 
contained  this  design.  Third,  that  it  is  from  the  Spanish  word 
pesos,  meaning  hard  money.  Fourth,  that  it  is  a  modification 
of  the  figure  8,  the  dollar  being  formerly  called  "a  piece  of  8" 
and  designated  by  the  symbol  8=8  or  =.  The  two  eights  and 
the  double  hyphen  gradually  changed  until  it  became  $.  This 
is  the  more  plausible  theory.  One  of  the  lines  has  now  been 
dropped  by  some  and  we  have  $. 

§  386.  Split  Coin.  The  stamping  machine  at  the  Mint 
sometimes  comes  down  too  hard  on  the  coins  and  splits  them. 
These  are  mostly  five  dollar  gold  pieces,  though  occasionally 
a  ten  or  twenty  will  split.  They  are,  however,  very  careful 
at  the  Mint  and  stop  all  split  coins  that  they  detect.  The  split 
coin  usually  seems  perfect,  and  the  defect  can  be  detected 
only  by  the  peculiar  dull  ring  when  thrown  on  the  counter. 

§  387.  United  States  Paper  Money.  These  are  called 
"United  States  notes,"  "legal  tenders,"  "greenbacks,"  "United 
States  demand  notes,"  etc.  We  cannot  see  that  they  are  any 
more  a  legal  tender  than  any  other  class  of  lawful  United 
States  money;  nor  that  their  backs  are  any  greener  in  hue 
than  many  of  the  national  bank  bills.  As  to  their  being 
United  States  demand  notes,  this  is  a  misnomer,  for  it  is  a 
curious  fact,  and  one  that  few  people  have  noticed,  that,  un- 
like any  other  paper  money  afloat,  either  in  this  country  or 
abroad,  they  are  actually  not  even  payable  on  demand.  They 
read,  "The  United  States  will  pay  the  bearer,"  while  all 
other  paper  money  of  all  lands  reads,  "  Will  pay  the  bearer 
on  demand."  There  are  about  $346,500,000  in  these  notes 
now  in  circulation. 

United  States  notes  are  redeemed  by  the  U.  S.  Treasurer, 
or  any  of  his  nine  assistants,  in  specie,  but  this  does  not  mean 
gold,  only  at  the  government's  option;  and  it  is  this  silver 
option  which  the  government  has,  that  leads  London  to  quote 
United  States  notes  at  eighty-five  cents,  and  induces  bankers 


THE  PAYING  TELLER. 


207 


and  others  to  hoard  up  gold  when  a  panic  comes  or  is  threat- 
ened. 

Our  United  States  notes  are  good  money  in  our  own  nation, 
but  in  the  world's  exchanges  they  are  short  by  the  world's 
difference  in  quotations  of  gold  and  silver.  And  so  they  will 
remain  until  they  are  redeemable  in  gold  or  the  world  of  ex- 
change adopts  a  bi-metallic  standard. 

§  388.  National  Bank  Notes.  As  we  have  already  seen 
these  are  the  bank's  demand  promissory  notes.  They  are  not 
lawful  money.  They  are  not  a  legal  tender  between  man  and 
man  except  when  not  objected  to  on  account  of  their  not  being 
money.  They  are  legal  tenders,  however,  between  individuals 
and  national  banks,  for  national  banks  are  obliged  to  receive 
them  for  debts  due.  They  are  redeemable  at  a  central  bureau 
in  Washington  and  over  the  issuing  bank's  counter,  in  lawful 
money  (Treasury  notes,  United  States  notes,  gold  and  silver); 
their  market  value  being,  therefore,  the  same  as  the  United 
States  notes.  There  are  about  $186,000,000  in  national 
bank  notes  in  circulation  (1894). 

§  3880.  Coin  Standing  of  National  Bank  Notes.  National 
bank  notes  are  secured  by  U.  S.  bonds,  and  they  are  well  se- 
cured, for  there  are,  estimated  at  par,  $100  in  bonds  behind 
each  $90  in  notes  outstanding.  All  these  notes  are  redeem- 
able either  at  the  redemption  bureau  at  Washington  or  at 
the  bank's  own  counter.  And  they  are  redeemable  in 
lawful  money  of  the  United  States.  And  the  law  says  that 
lawful  money  is  legal  tenders,  silver  dollars  and  gold  to  any 
amount,  and  fractional  silver  to  the  extent  of  $5.  This  brings 
the  national  bank  notes  to  a  silver  basis.  So  that  every  dol- 
lar of  the  national  bank  notes  can  be  lawfully  redeemed  in 
silver.  Of  course,  this  fact  is  of  but  little  consequence  as  long 
as  gold  is  not  at  a  premium.  But  the  moment  that  gold  touches 
a  premium  this  silver  option  on  national  bank  bills  will  make 
quite  a  disturbance.  The  question  as  to  whether  gold  is 
advancing  to  a  premium  can  be  answered  only  by  future 
developments. 


2o8  THE  BUSINESS  OF  BANKING. 

§  389.  Silver  and  Gold  Certificates.  As  provided  by  law, 
silver  certificates  are  issued  on  a  special  deposit  of  silver  at 
the  Treasury  of  the  United  States.  They  are  receivable  by 
all  national  banks  for  debts  due,  and  count  as  a  part  of  a 
bank's  legal  reserve.  National  banks  that  are  members  of 
any  Clearing-house  are  compelled  to  accept  them  in  payment 
of  Clearing-house  balances.  National  banks  cannot  take 
them  for  security  for  loans;  they  cannot  lock  them  up  and 
withhold  them  from  circulation. 

These  silver  certificates  were  issued  under  act  of  Congress 
of  Feb.  28,  1878,  and  all  read  "payable  to  the  bearer  on 
demand  so  many  silver  dollars,"  at  the  Treasurer's  office. 
They  are  not  a  legal  tender,  but  are  so  near  being  so,  from 
the  fact  that  they  can  be  taken  to  the  nearest  Sub-Treasury 
and  exchanged  for  silver,  that  they  practically  do  legal  tender 
work  in  our  currency. 

Gold  certificates  are  issued  under  about  the  same  regula- 
tions, in  amounts  not  less  than  $20. 

§  390.  Worn  and  Fragmentary  Paper  Money.  One  of 
the  great  governmental  questions  which  are  hard  to  answer 
is,  how  to  keep  paper  money  in  a  presentable  condition.  It 
becomes  torn  and  filthy  and  unfit  for  circulation.  The  paper 
money  of  to-day  is  far  superior  to  that  of  any  other  age.  But 
with  this  excellent  money  has  come  a  custom  among  men  of 
using  it  in  a  careless  and  slovenly  way.  They  wad  it  into  small 
purses,  jam  it  into  trousers  pockets  among  whatever  chances 
to  be  therein,  or  they  stuff  it  into  vest  pockets  with  as  little 
care  as  possible.  Men  seem  to  think  that  it  makes  no  differ- 
ence so  long  as  it  is  still  fit  for  passage  to  the  next  man. 
But  those  same  men  object  to  the  worn  and  filthy  condition 
of  the  currency  and  often  blame  Congress  for  its  condition. 
If  each  one  would  be  careful  in  handling  paper  currency  it 
would  not  be  in  such  condition. 

New,  fresh,  crisp  notes  always  give  an  additional  thrill  of 
pleasure.  Besides,  however,  torn  and  spoiled  money,  which 


THE  PAYING  TELLER.  209 

has  passed  through  many  hands,  been  thumbed  by  persons 
afflicted  with  contagious  diseases,  and  well  fingered  by  the 
"great  unwashed,"  is  a  constant  menace  to  public  health. 

In  this  respect  it  is  within  the  power  of  paying  tellers  to 
make  great  improvements.  In  all  his  work  the  paying  teller 
ought  to  be  a  criterion  of  neatness,  and  if  he  would  exert  a 
little  pains  in  having  on  hand,  for  the  needs  of  the  retail 
branch  of  his  bank,  an  ample  supply  of  nice,  new,  bright,  and 
unmutilated  paper  money,  of  the  smaller  denominations,  and 
new,  bright  coin  of  all  kinds,  we  would  see  the  condition  of 
our  money  much  improved.  With  but  little  trouble  or  expense, 
especially  in  our  large  cities,  paying  tellers  may  obtain  new 
small  bills,  silver  and  pennies  for  old  ones  at  the  United  States 
Treasury. 

§391.  Redemption  of  National  Bank  Notes.  §  391  to 
§  395*  inclusive,  are  .from  the  Treasurer's  circular  on  the  Issue 
and  Redemption  of  the  Currency  : 

1.  National  bank  notes  are  redeemable  by  the  Treasurer  in 
sums  of  $1,000,  or  any  multiple  thereof. 

2.  Notes  equalling  or  exceeding  three-fifths  of  their  original 
proportions  and  bearing  the  name  of  the  bank  and  the  signa- 
ture of  one  of  its  officers,  are  redeemable  at  their  face  value. 

3.  Notes  of  which  less  than  three-fifths  remain,  or  from 
which  both  signatures  are  lacking,  are  not  redeemed  by  the 
Treasurer,  but  should  be  presented  for  redemption  to  the  bank 
of  issue.     Fragments  less  than  three-fifths  are  accepted  from 
the  bank  of  issue  for  face  value  by  the  Treasurer  only  when 
accompanied  by  evidence,  as  required  by  paragraph  9,  that  the 
missing  portions  have  been  totally  destroyed. 

4.  Fragments  redeemed  by  the  bank  of  issue  for  less  than 
face  value  are  accepted  by  the  Treasurer  only  when  their  val- 
uation is  equal  to  the  face  value  of  a  note  of  some  denomina- 
tion issued  by  the   bank,  or  some  multiple  thereof.       The 
required  valuation  may  be  made  up  of  several  fragments  of 
notes  of  the  same  or  different  denominations.     Fragments  not 


210  THE  BUSINESS  OF  BANKING. 

clearly  more  than  two-fifths  are  accepted  only  when  accom- 
panied by  evidence,  as  required  by  paragraph  9,  that  the  miss- 
ing portions  have  been  totally  destroyed. 

5.  It  having  been  decided  that  national  bank  notes,  stolen 
when  unsigned,  and  put  in  circulation  with  forged  signatures, 
are  not  obligatory  promissory  notes  of  the  bank  under  §  5182 
of  the  Revised  Statutes,  they  are  not  redeemed  by  the  Treas- 
urer. 

§  392.  Redemption  of  United  States  Paper  Currency.  6.  The 
Treasurer  will  forward  new  United  States  notes  by  express,  at 
the  expense  of  the  consignee,  at  government  contract  rates,  or 
by  registered  mail,  registration  free,  at  the  risk  of  the  consignee, 
in  return  for  United  States  notes  unfit  for  circulation,  national 
bank  notes,  fractional  silver  coin,  and  minor  coin.y 

7.  United  States  notes,   fractional  currency  notes,    gold 
certificates,  silver  certificates,  and  Treasury  notes  of  1890,  are 
redeemable  by  the  Treasurer,  and  when  not  mutilated  so  that 
less  than  three-fifths  of  the  original  proportions  remain,  by 
the  several  Assistant  Treasurers,  at  face  value.  United  States 
notes  are  redeemable  in  coin,  in  sums  not  less  than  $50,  by 
the  Assistant  Treasurers  in  New  York  and  San   Francisco. 
Silver  certificates  are  redeemable  in  standard  silver  dollars 
only,  or  exchangeable  for  other  silver  certificates. 

8.  United  States  notes,  fractional    currency    notes,    gold 
certificates,  silver  certificates,  and  Treasury  notes  of  1890, 
when  mutilated  so  that  less  than  three-fifths,  but  clearly  more 
than   two-fifths,    of    the    original    proportions    remain,     are 
redeemable  by  the  Treasurer  only,  at  one-half  the  face  value 
of  the  whole  note  or  certificate.     Fragments  not  clearly  more 
than  two-fifths  are  not  redeemed,  unless  accompanied  by  the 
evidence  required  in  paragraph  9. 

9.  Fragments  less  than  three-fifths  are  redeemed  at  the 
face  value  of  the  whole  note  when  accompanied  by  an  affida- 
vit of  the  owner  or  other  persons  having  knowledge  of  the 

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212  THE  BUSINESS  OF  BANKING. 

facts  that  the  missing  portions  have  been  totally  destroyed. 
The  affidavit  must  state  the  cause  and  manner  of  the  mutila- 
tion, and  must  be  sworn  to  and  subscribed  before  an  officer 
qualified  to  administer  oaths,  who  must  affix  his  official  seal 
thereto,  and  the  character  of  the  affiant  must  be  certified  to 
be  good  by  such  officer  or  some  other  having  an  official  seal. 
Signatures  by  mark  [X]  must  be  witnessed  by  two  persons 
who  can  write,  and  who  must  give  their  places  of  residence. 
The  Treasurer  will  exercise  such  discretion  under  this  regula- 
tion as  may  seem  to  him  needful  to  protect  the  United  States 
from  fraud.  Fragments  not  redeemable  are  rejected  and 
returned. 

§  393.  Redemption  or  Exchange  of  Fractional  Silver 
Coin,  Minor  Coin,  and  Standard  Silver  Dollars.  10.  Frac- 
tional silver  coin  and  coins  of  copper,  bronze,  or  copper-nickel, 
may  be  presented  in  sums  or  multiples  of  $20,  assorted  by 
denominations  in  separate  packages,  to  the  Treasurer,  or  an 
Assistant  Treasurer,  for  redemption  or  exchange  into  lawful 
money,  and  standard  silver  dollars  for  exchange  into  silver 
certificates  only.  When  forwarded  by  express,  the  charges 
should  be  prepaid. 

11.  No  foreign  or  mutilated  silver  coin  will  be  redeemed. 
Reduction  by  natural  abrasion  is  not  considered  mutilation. 

12.  Minor  coin  that  is  so  defaced  as  not  to    be   readily 
identified,  or  that  is  punched  or  clipped,  will  not  be  redeemed 
or  exchanged.     Pieces  that  are  stamped,  bent  or  twisted  out 
of  shape,  or  otherwise  imperfect,  but  showing  no  material  loss 
of  metal,  will  be  redeemed. 

§  394.  Transmission  to  the  Treasurer.  13:  United 
States  notes,  gold  certificates,  silver  certificates,  Treasury 
notes  of  1890,  and  national  bank  notes  should  be  forwarded 
in  separate  remittances.  The  notes  should  be  assorted  by 
denominations  and  inclosed  in  paper  straps,  not  more  than 
100  notes  to  each  strap,  and  the  straps  should  be  marked  with 


THE  PAYING  TELLER.  213 

the  amount  of  their  contents.     Not  more  than  8,000  notes 
should  be  put  in  one  package. 

14.  An  inventory,  giving  the  amount  of  each  denomina- 
tion of  notes,  the  total  amount  in  the  package,  the  address  of 
the  party  sending,  and  the  disposition  to  be  made  of  the  pro- 
ceeds, should  be  inclosed  with  each  package,  and  a  letter  of 
advice  sent  by  mail. 

15.  The  package,  if  it  be  sent  by  express,  should  be  sealed 
up  in  stout  paper  and  addressed  to  the   "  Treasurer  of  the 
United  States,  Washington,  D.  C."     The  wrapper  should  be 
plainly  marked  with  the  owner's  name  and  address,  the  amount 
and  kind  of  currency  inclosed,   and,  if  the  sender  desires  the 
benefit  of  the  Government  contract,  with  the  words  "under 
Government  contract  with  the  United  States  Express  Com- 
pany.' 

1 6.  It  is  the  duty  of  postmasters  to  register  free  of  charge 
all    letters   on  which   the   postage   has  been   fully  prepaid, 
addressed  to  the  Treasurer,  containing  currency  of  the  United 
States  for  redemption.     It  is  recommended  that  all  such  let- 
ters be  registered  as  a  protection  against  loss. 

17.  Remittances  of  money  by  mail  should  be  addressed 
to  the  "  Treasurer  of  the  United  States,  Washington,  D.  C," 
Such  remittances  and  returns  therefor  by  mail  are  invariably 
at  the  risk  of  the  owners.     All  communications  to  the  Treas- 
urer in  regard  to  packages  lost  in  the  mail  are  referred  .for 
investigation  to  the  Chief  Post-Office  Inspector,  Post-Office 
Departmert,   Washington,   D.   C.,  to  whom  any  subsequent 
inquiry  on  the  subject  should  be  addressed. 

§  395.  Express  Charges.  18.  The  Government  con- 
tract with  the  United  States  Express  Company  for  the  trans- 
portation of  moneys  and  securities  extends  to  all  points  access- 
ible through  established  express  lines  reached  by  continuous 
railway  communications,  but  does  not  embrace  sea  or  river 
transportation  of  any  kind,  and  does  not  extend  westward 


214  THE  BUSINESS  OF  BANKING. 

beyond  the  Missouri  River,  but  includes  the  states  of  Missouri, 
Arkansas,  and  Texas. 

19.  The  contract  rates  for  the  transportation  of  all  kinds  of 
paper  currency  to  or  from  Washington  are — between  Washing- 
ton and  points  in  the  territory  of  the  United  States  Express 
Company  and  reached  by  it,  1 5  cents  per  $1,000;  sums  of  $500 
or  less,  10  cents.  The  charge  to  points  not  reached  by  the 
United  States  Express  Company  varies  greatly,  and  may  be 
ascertained  by  application  to  the  Treasurer  of  the  United 
States. 

§  396.  Redemption  of  Worn  Money.  Of  course  any  one 
may  find  in  his  hands  worn  and  filthy  bills,  no  matter  how 
great  care  may  be  exercised.  These,  of  course,  will  be  prop- 
erly redeemed  when  presented  for  that  purpose. 

If  the  whole  face  of  the  bill  is  present  and  in  a  condition  to 
admit  of  recognition  it  will  be  redeemed  at  face  value  no  mat- 
ter«how  dirty  it  may  be.  Even  if  every  signature,  written  or 
engraved,  be  indecipherable,  or  washed  or  worn  entirely  away, 
yet  the  bill  will  be  redeemed. 

§  397.  Detection  of  Counterfeit  Paper  Money.  Men  who 
have  the  most  experience  in  hunting  for  or  finding  counterfeit 
money,  say  that  the  only  rule  by  which  one  may  become 
skilled  in  detecting  counterfeits  is  a  study  of  genuine  bills. 
The  man  loaded  with  bad  money,  who  professes  to  have  the 
great  secret  of  detecting  the  spurious  article,  and  who  wants 
ten  or  twenty  dollars  for  a  divulgence  of  the  great  mystery, 
has  visited  about  all  communities.  He  is  a  fraud.  There  is 
no  royal  road  to  knowledge.  There  is  none  to  experience. 
Careful  study,  painstaking  toil,  and  a  liking  for  the  work  will 
make  any  one  an  expert.  You  cannot  learn  to  detect  bad 
money  by  a  study  of  bad  money.  Study  good  money  until 
you  know  whether  a  bill  is  good  or  not.  A  sufficient  amount 
of  study  of  genuine  bills  will  enable  any  one  to  detect  and 
condemn  bad  money  at  sight. 

The  issues  of  United  States  notes  prior  to  1869  were  printed 


THE  PAYING  TELLER.  215 

on  plain  bank-note  paper.  Later  issues  are  printed  on  fiber 
paper.  There  are  many  counterfeits  of  the  old  notes,  and 
quite  a  number  of  the  later  issue.  The  Secret  Service  Bu- 
reau of  the  Treasury  Department  is  managed  with  such  skill 
that  advice  of  any  attempt  to  float  counterfeit  money  is  fur- 
nished to  the  bankers  before  the  counterfeiter's  plans  are  car- 
ried out. 

§  398.  Check  Letters.  All  United  States  paper  money  is 
printed  in  sheets  of  four  notes  of  one  denomination.  Each 
note  is  lettered  in  its  respective  order  on  each  end,  A,  B,  C,  D. 
The  number  on  each  bill  bears  a  certain  relation  to  this  check 
letter.  If  the  number  on  a  bill  be  divided  by  four  with  one 
as  a  remainder,  the  check  letter  is  A;  two  remainder,  B;  three 
remainder,  C;  no  remainder,  D.  Any  paper  money  upon 
which  the  number  cannot  be  divided  by  four  and  exhibit  the 
above  result  is  a  counterfeit. 

This,  however,  is  not  an  infallible  rule  for  finding  counter- 
feits, as  the  counterfeiter  might  make  his  notes  to  correspond 
with  this  result.  Long  experience  in  handling  money  and 
continued  study  of  genuine  bills  is  the  only  rule  to  follow  in 
becoming  an  expert  detective  of  counterfeits. 

§  399.  Publishing  Counterfeits.  "Counterfeits  do  not 
appear  until  after  the  genuine  has  been  some  time  in  use,  and 
every  part  of  it  is  well  known.  It  is  not  so  wonderful,  then, 
that  after  this  daily  familiarity  with  the  appearance  of  a  note 
the  first  deviation  from  it  should  attract  attention.  Exactly 
what  it  is  that  does  expose  the  counterfeit  the  best  experts 
find  it  difficult  to  tell.  They  say  they  know  it  instinctively. 
They  judge  not  only  by  the  looks  of  a  note  but  by  the  feel 
of  it. 

"  It  is  obvious  that  a  counterfeit  note  must  be  widely  cir- 
culated to  make  it  profitable.  No  sooner  does  a  counterfeit 
appear  than  its  description  is  widely  published.  Those  who 
are  likely  to  suffer  by  taking  counterfeit  notes  make  it  their 
business  to  be  on  the  lookout  for  new  counterfeits,  which  are 


216  THE  BUSINESS  OF  BANKING. 

distinguishable  by  some  easily  discovered  mark.  A  teller 
knows  just  what  denomination  of  notes  has  been  counter- 
feited, and  just  where  to  look  for  the  tell-tale  marks.  He 
notices  the  counterfeits  as  easily  as  the  reader  notices  a  mis- 
spelled word.  It  is  no  particular  effort.  It  is  habit,  and  be- 
comes a  second  nature. 

§  400.  Inferior  Quality  of  Counterfeits.  "  One,  and  the 
main  reason,  why  counterfeits  are  easily  detected,  is  because 
in  some  features  they  are  almost  uniformly  of  inferior  quality. 
This  is,  indeed,  the  main  protection  to  the  public.  Genuine 
notes  are  engraved  and  printed  almost  regardless  of  cost,  and 
the  very  best  materials  are  used  in  the  engraving  and  printing. 
It  is  done  in  large  establishments  with  costly  materials  and 
the  best  workmen.  It  is  practically  impossible  for  counter- 
feiters to  do  work  as  well.  They  must  work  in  secret  and 
at  a  disadvantage,  and  of  necessity  cannot  have  the  experi- 
ence to  produce  such  perfect  work.  If  they  get  the  engrav- 
ing done  nicely  they  fail  in  the  printing ;  or,  if  they  get  the 
engraving  and  the  printing  done  well,  they  fail  in  securing  the 
proper  paper.  Of  late  years  there  has  been  a  great  deal  of 
care  taken  to  get  paper  manufactured  expressly  for  the  notes 
manufactured  by  the  government.  The  national  bank  notes 
are  also  issued  by  the  government,  so  that  the  sources  of  sup- 
ply for  exactly  that  kind  of  paper  are  controlled. 

"  When  you  look  at  it  a  moment  it  is  not  nearly  so  wonder- 
ful that  a  teller  should  detect  a  bad  note  as  that  a  proof- 
reader should  detect  bad  spelling.  It  is  only  another  instance 
of  the  work  of  the  trained  eye.  The  expert  mechanic  sees  ( 
at  a  glance  things  that  an  ordinary  observer  would  not  notice. 
This  is  particularly  true  of  all  kinds  of  artistic  work.  The 
artist  sees  the  defect  and  can  hardly  describe  it  in  words, 
although  he  may  be  able  to  correct  it." 

Many  banks  keep  a  supply  of  counterfeit  money  on  hand 
for  the  purpose  of  identifying  counterfeits,  but  a  law  has  just 


THE  PAVING  TELLER.  217 

been  passed  prohibiting  any  one  from  having  on  hand  more 
than  $500  in  spurious  money  for  this  purpose. 

§  40 1 .  The  Silk  Threads.  The  two  silk  threads  which  run 
lengthwise  in  every  issue  of  paper  money  made  by  the  gov- 
ernment are  seldom  found  in  counterfeits.  These  are  a  little 
more  than  an  inch  apart  and  are  put  in  the  paper  during  its 
manufacture.  Counterfeits  cannot  have  the  paper  made  in 
this  way,  as  the  machinery  would  cost  so  much  that  if  they 
had  the  necessary  money  they  would  not  risk  it  in  order  to 
make  spurious  money.  The  only  way  they  can  put  these 
threads  in  a  bill  is  by  splitting  it,  inserting  the  threads,  and 
pasting  the  halves  together  again.  See  note,  page  220. 

§  402.  Geometrical  Lathe  Work.  The  geometrical  lathe 
work  found  on  all  United  States  issues  is  also  difficult  to  imi- 
tate successfully,  and  the  machine  now  in  use  by  the  govern- 
ment cost  $85,000.00,  and  it  is  therefore  practically  beyond 
the  means  of  most  counterfeiters. 

§403.  Branding  Worthless  Notes.  The  law  requires  na- 
tional banks  to  stamp  or  write  the  words  "altered,"  "counter- 
feit" or  "worthless,"  upon  all  circulating  notes  which  come  to 
their  hands.  If  any  genuine  note  is,  by  mistake,  thus  muti- 
lated, they  must  pay  the  damages,  but  need  not  lose  the  amount 
as  such  paper  will  be  redeemed  at  the  Treasurer's  office. 

§  404.  Stolen  Bank  Notes.  Probably  the  most  dangerous 
type  of  counterfeit  paper  money  is  bank  notes  which  have 
been  stolen  before  they  were  delivered  to  the  bank.  This  has 
occurred  several  times.  These  notes  have  not  yet  received  the 
signatures  of  the  president  or  cashier,but  the  thief  forges  these 
names,  and,  as  the  people  are  not  familiar  with  the  signatures 
of  all  bank  officers,  these  bills  are  passed  as  easily  as  genuine 
paper.  And  in  this  connection  the  law  contains  an  injustice,  for 
should  an  individual  present  one  of  these  bills  to  a  bank  officer 
who  had  been  notified  that  such  bills  were  in  circulation,  and 
he  should  stamp  it  "worthless,"  the  individual  would  have  to 
suffer  the  loss.  This  matter  could  be  easily  remedied  by  an 


218  THE  BUSINESS  OF  BANKING. 

appropriation  by  Congress  for  the  redemption  of  such  stolen 
bank  notes. 

An  amendment  to  the  National  Bank  Act  has  been  reported 
(June,  1892)  to  Congress  by  the  house  committee  on  banking, 
recommending  that  all  national  bank  notes  issued  by  the 
United  States  shall  be  redeemed,  notwithstanding  that  they 
may  have  been  stolen  and  put  in  circulation  without  the  sig- 
natures of  the  bank  officials,  or  with  such  signatures  forged. 

This  amendment  to  the  law  will,  if  passed,  protect  innocent 
holders  of  such  notes,  as  well  as  the  banks,  from  loss,  for  as 
the  law  now  stands  the  bank  must  lose  the  amount  and  the 
profit  all  goes  to  the  Treasury  of  the  United  States. 

§  405.  Splitting  a  Bank  Bill.  There  are  many  ways  of 
changing  and  altering  bank  notes  so  as  to  make  them  appear 
for  more  than  they  are,  but  probably  the  cleverest  thing  ever 
attempted  in  this  line  of  fraudulent  practice  is  that  of  split- 
ting bank  notes.  This  is  a  delicate  operation  but  it  has  been 
practiced  with  great  exactness  in  France  and  in  the  North  and 
South  American  states  for  several  years.  American  currency 
splitters  are  the  most  skillful  and  can  lay  open  a  Bank  of  Eng- 
land note  as  easily  as  a  national  bank  bill. 

These  clever  rascals  commonly  use  $5  and  $50  bills,  which 
are  split  edgewise.  Then  they  manipulate  them  in  this  way: 
The  front  of  the  $5  bill  is  deftly  fastened  to  the  back  of  the 
$50  bill  and  the  back  of  the  note  of  the  smaller  denomination 
to  the  face  of  the  larger  one.  When  this  is  accomplished  the 
maker  has  two  fifty  dollar  bills  that  will  pass  current  almost 
anywhere.  In  working  off  these  split  notes  the  shover  forces 
the  $50  of  each  note  on  the  victim,  who  rarely  thinks  it  nec- 
essary to  examine  the  other  side.  He  scans  the  side  exposed 
to  him  by  the  trickster  and  of  course  accepts  it  as  genuine. 
By  this  device  the  splitter  clears  a  profit  of  $45  on  every  two 
bank  notes  he  works  off. 

The  work  of  splitting  is  done  with  a  machine,  which  is 
manufactured  in  England.  It  consists  of  a  burnished  solid 


THE  PAYING  TELLER.  219 

steel  roller,  two  inches  in  diameter,  hanging  over  a  smooth 
plate  of  the  same  metal.  The  ends  of  the  roller  rest  in  slotted 
uprights,  and  may  be  raised  or  lowered  infmitesimally  by  means 
of  screws  as  fine  as  those  of  the  finest  watch.  A  main  screw 
as  finely  threaded  as  the  others,  is  turned  automatically  by 
clock  work,  which  stands*  at  the  right  end  of  the  steel  barrel. 

Over  the  plate,  and  with  the  edge  under  the  roller,  is  firmly 
fixed  a  knife.  Its  ends  are  locked  in  grooves  in  flanges  on 
either  side  of  the  steel  bed. 

The  knives  are  imported  from  Sheffield,  England,  because 
American  makers  of  surgical  instruments  are  unable  to  turn 
out  blades  of  the  requisite  thinness  and  temper.  The  blade 
is  a  third  of  an  inch  wide,  three  inches  long  in  the  clear,  and 
thinner  than  a  hair's  breadth.  No  lancet  has  half  so  keen  an 
edge. 

Before  a  bank  bill  is  put  into  the  jaws  of  the  machine  it 
is  made  limp  by  water  and  every  taint  of  dirt  is  removed. 
Then  it  is  dried  between  pads  of  lint,  after  which  it  is  placed 
between  deep  files  of  the  finest  calendered  paper  and  left  pinned 
in  a  screw  press  from  twenty-four  to  thirty-six  hours.  When  it 
comes  out  it  looks  as  bright,  clean  and  fresh  as  a  new  bank 
note,  and,  what  is  of  more  importance  to  the  operator,  it  is 
almost  as  stiff  as  card  board.  Then  it  is  ready  for  splitting. 
One  of  its  ends  is  inserted  under  the  roller  on  the  side  farth- 
est from  the  knife. 

Then  the  weights  of  the  clock  are  set  going  and  the  bright 
metal  roller  turns  so  slowly  that  its  motion  is  scarcely  percep- 
tible. As  the  bank  note  is  worked  through  its  end  is  met  by 
the  knife  edge.  The  knife  is  set  so  delicately  that  it  passes 
exactly  through  the  width  of  the  bill.  One-half  of  the  bank 
note  passes  above  the  knife,  and  the  other  half  moves  under 
the  blade.  The  blade  is  so  delicately  set  above  the  plate  that 
there  is  just  space  enough  to  let  the  half  of  the  bill  pass 
through. 


220  THE  BUSINESS  OF  BANKING. 

An  hour  is  required  to  run  a  single  bank  note  through  the 
splitter.  After  being  halved  the  sides  are  given  a  gentle  steam- 
ing to  raise  the  fiber  on  the  cut  sides,  in  order  that,  when 
forced  together  with  2,5oo-pound  pressure,  the  threads  will 
knit  into  a  perfect  fac  simile  of  a  genuine  bank  note. 

NOTE  TO  §  401. — The  paper  of  which  paper  money  is  now  (1893)  made,  no 
longer  contains  the  two  silk  threads,  but  in  their  stead  are  red  and  blue  silk  fibers 
scattered  thickly  in  the  paper  in  such  a  manner  that  they  show  through  both 
sides  of  the  bill.  These  fibers  are  about  half  an  inch  in  length  and  run  in  all 
directions  and  are  considered  an  almost  absolute  safeguard  against  successfu" 
counterfeiting. 


CHAPTER  VIII. 

THE  RECEIVING  TELLER, 


£406.    General  view. 

407.  The  deposit  ticket. 

4070. A  new  form  of  deposit  ticket. 

408.  The  pass  book. 

409.  Writing  up  the  pass  books. 

410.  The  pass  book  is  not  negotiable. 

411.  The  Clearing-house  exchanges. 

412.  Requiring  certification. 

413.  Examining  the  checks. 

414.  Examining  the  money. 

415.  Depositors'  credit  claims. 


§416.  Over  and  shoit. 

417.  Taking  the  deposits. 

418.  A  deposit  defined. 

419.  Special  deposits. 

420.  Loss  of  special  deposit. 

421.  Checks  drawn  on  the  depositary. 

422.  Uncurrent  bank  notes. 

423.  Deposit  made  through  fraud. 

424.  Banking  hours. 

425.  Forced  deposits. 

426.  Interest  on  deposit. 


§  406.  The  receiving  teller  is  appointed  and  gives  bonds  in 
the  same  way  as  the  paying  teller.  The  amount  of  his  bonds, 
however,  is  usually  smaller  and  he  receives  a  smaller  salary 
than  the  paying  teller.  When  the  paying  teller  is  promoted 
the  receiving  teller  takes  his  place. 

While  there  are  no  difficult  calculations  connected  with  his 
position,  yet  he  ought  to  be  a  man  of  good  ability  and  sound 
judgment.  He  deals  largely  with  the  general  public,  and  has, 
therefore,  a  great  deal  to  do  with  the  good  will  of  his  bank. 

He  is  usually  looked  to  and  considered  as  an  assistant  to 
the  paying  teller. 

He  should  be  well  acquainted  with  the  depositors'  accounts 
and  their  average  run.  He  ought  to  be  constantly  on  the  alert 
to  obtain  all  the  information  possible  regarding  the  movement 
of  trade,  and  especially  should  he  seek  to  know  the  methods 
and  character  of  business  men  generally. 


222 


THE  BUSINESS  OF  BANKING. 


The  receiving  teller  receives  all  the  money  taken  in  by  the 
bank.  When  there  is  a  note  teller,  however,  he  receives  the 
deposits  and  the  note  teller  all  moneys  paid  for  collections, 
etc.  The  receiving  teller  is  called  the  deposit  teller,  or  second 
teller;  the  note  teller  is  called  the  third  teller. 

§  407.     The  Deposit  Ticket.     The  deposits  of  merchants 

DEPOSITED  IN 


By.. 


189. 


PLEASE  LIST  EACH  CHECK  SEPARATELY. 


Bank  Notes, 
Gold, 
Silver, 
Checks, 


and  dealers  consist  of  checks  and  money,  already  described, 
and  various  documents  representing  money.     The  depositor 


THE  RECEIVING  TELLER.  223 

makes  out  a  proper  description  of  his  deposit,  called  a  deposit 
ticket,  which  accompanies  the  pass  book  and  funds  for  de- 
posit. 

The  form  given  herewith  is  used  by  some  of  the  best  banks. 
It  contains  the  name  of  the  depositor,  the  date,  and  an  item- 
ized list  of  the  funds  constituting  the  deposit. 

If  his  cash  does  not  prove  at  the  end  of  the  day's  business 
he  re-examines  these  tickets  to  find  his  error.  If  the  cash 
proves  he  puts  the  tickets  into  a  package,  which  he  labels  with 
the  date,  and  then  stores  them  for  future  reference. 

§  407 a.  An  Improved  Form  of  Deposit  Ticket.  The  form 
of  deposit  ticket  described  below  will  commend  itself: 

''"Since  it  costs  about  the  same  to  print  any  given  number 
of  words,  great  care  should  be  taken  in  the  composition  of 
blanks  for  mercantile  use.  If  a  single  word  of  writing  is 
saved  on  each  blank,  of  which  15,000  are  consumed  annually 
in  an  ordinary  bank,  that  many  words  are  saved,  and  the 
clerk  hire  necessary  to  write  them  may  be  estimated  at  about 
$10,  that  is  if  it  can  be  estimated  at  all,  while  the  comfort 
and  satisfaction  of  using  a  handy  blank  may  almost  be  termed 
'a  joy  forever.' 

"  The  deposit  slip  would  seem  to  offer  little  field  for  im- 
provement, and  yet  the  writer  has  for  the  past  six  years  been 
constantly  receiving  sample  forms  from  the  leading  stationers 
showing  what  are  in  actual  use  at  present  in  the  banks  in  the 
country,  and  he  believes  that  many  of  them  can  be  modified 
to  advantage.  His  idea  on  the  subject  may  be  exemplified  by 
•  the  form  shown  below. 

"  The  reminder  with  reference  to  indorsing  may  save  the 
receiving  teller  an  occasional  trip  to  hunt  up  a  careless  or 
ignorant  customer  and  get  his  signature;  for  no  matter  how 
careful  the  teller,  he  will  sometimes  take  a  check  without 
indorsement,  when  his  attention  is  directed  to  other  important 
matters  connected  with  the  deal.  The  wording  '  for  account 
of,'  is  much  better  than  the  word  'by,'  as  frequently  the  de- 


224 


THE  BUSINESS  OF  BANKING. 


posit  is  made  by  one  person  and  the  money  is  to  be  placed  to 
the  account  of  another.  The  two  blank  lines  below  are  also 
convenient  in  such  cases,  and  also  in  some  instances  to  give 
the  address  of  a  depositor,  or  write  a  very  long  name  in  full. 

SEE    THAT    ALL    CHECKS    AND    DRAFTS    ARE    INDORSED. 


DEPOSITED  WITH  THE 

STATE  BANK  or  VALPARAISO, 

For  Account  of 


Valparaiso,  Ind. 

JSP"  Please  List  each  Check  separately. 


Currency 

Gold 

Silver 

Note 

Interest  

Checks  or  Drafts  as  follows 


DOLLARS.         CENTS. 


Less  Exchange 

Net  Total,  $ 

"  The  request  that  checks  be  listed  separately  is  worth  all 
the  room  it  takes,  especially  as  it  imposes  no  additional  labor 
©n  the  banker.  He  makes  the  request,  the  customer  'does 
the  rest.' 


THE  RECEIVING  TELLER.  225 

"  The  item  '  Note'  is  somewhat  unusual,  but  it  will  be  sur- 
prising how  many  times  it  comes  handy.  •  Interest'  is  new  so 
far  as  the  writer  has  observed,  but  it  will  save  writing.  It 
may  cover  accrued  interest  allowed  for,  in  whole  or  in  part, 
on  a  note  purchased;  interest  on  a  note  collected;  interest  on 
a  deposit;  or  a  special  deposit  to  pay  interest  on  a  note 
made  payable  at  the  bank.  Six  lines  are  given  for  the  listing  of 
checks.  One  or  two  more  may  be  added  if  needed,  making 
the  slip  longer.  The  item  Mess  exchange'  will  explain  and 
commend  itself."11 

§  408.  The  Pass  Book.  When  a  depositor  makes  his 
first  deposit  in  a  bank,  he  is  given  a  pass  book  in  which  the 
bank  records  all  his  deposits.  The  record  includes  the  date, 
the  teller's  initials,  and  the  amount  of  the  deposit.  The  tell- 
er's initials  is  a  receipt  of  the  bank  for  the  money.  Irregular- 
ities are  often  occasioned  by  depositors  forgetting  their  pass 
books,  but  desiring  to  make  a  deposit  just  the  same.  In  this 
case  the  teller  issues  a  duplicate  ticket  and  hands  it  to  the 
depositor. 

In  case  of  an  out-of-town  customer,  who  sends  his  deposits 
in  by  mail  but  does  not  often  find  it  convenient  to  present 
his  pass  book,  no  pass  book  should  be  issued,  but  a  proper 
receipt  for  each  deposit  mailed  to  the  dealer  and  an  account 
rendered  to  him  at  the  end  of  the  month. 

§  409.  Writing  up  the  Pass  Books.  The  pass-books  are 
left  at  the  bank  once  a  month — or  should  be — to  be  written 
and  balanced  up.  This  consists  in  entering  all  the  checks 
and  drafts  on  the  bank,  whether  by  note  or  otherwise,  of  the 
depositor,  on  the  credit  side  of  the  book,  and  striking  a  bal- 
ance. In  entering  the  checks  it  is  not  necessary  to  give  dates 
or  numbers,  only  amounts,  making  three  or  four  columns  of 
figures  on  a  page.  After  the  checks  are  all  entered  and  the 
book  balanced,  the  number  of  checks  or  vouchers  is  stamped 

aFrom  the  pen  of  J.  H.  Skinner,  of  Valparaiso,  Ind.    Mr.  Skinner  is  a  bright, 
wide-awake  writer,  and  is  always  searching  for  new  and  improved  methods. 


226  THE  BUSINESS  OF  BANKING. 

or  written  in  the  book,  and  the  vouchers  are  returned  with 
the  book.  Depositors  should  leave  their  books  at  the  bank  a 
few  days  before  the  last  of  the  month  so  that  the  teller  may 
be  able  to  return  them  on  the  morning  of  the  first.  In  banks 
where  the  number  of  depositors  is  large,  it  is  customary  for 
nearly  all  the  clerks  to  assist  in  the  monthly  work  of  writing 
up  the  pass  books. 

A  receiving  teller  of  a  large  bank  informs  me  that  in  his 
bank  they  write  up  the  checks  on  a  separate  sheet  of  paper, 
properly  ruled  for  that  purpose,  and  then  place  only  the  total 
amount  of  the  vouchers  on  the  credit  side  of  the  pass  book. 
This  is  especially  advantageous  in  the  case  of  dealers  who 
draw  a  great  many  checks,  for  it  enables  the  officers  to  work 
at  writing  up  these  checks  before  the  rush  at  the  end  of  the 
month. 

Though  the  clerks  write  up  and  strike  the  balance,  the  re- 
ceiving teller  should  not  pass  them  back  to  the  dealer  until 
the  bookkeeper  has  examined  them  and  the  balances  checked 
off  on  his  books.  Sometimes  the  cashier  or  president  will 
check  off  these  balances  on  the  balance  sheet  or  the  ledger, 
to  make  sure  that  they  are  all  right. 

Banks  often  labor  at  some  disadvantage  on  account  of  the 
fact  that  depositors  seldom  or  never  acknowledge  the  correct- 
ness of  their  pass  book  after  it  has  been  balanced.  Almost 
any  experienced  bank  official  can  tell  of  cases  where  deposi- 
tors have  discovered  errors  in  pass  books  and  failed  to  report 
them  for  weeks,  perhaps  months.  Here  is  a  form  that  one 
banker  uses  to  get  an  expression  from  his  dealers : 


THE  RECEIVING  TELLER.  227 


y.  B.  Dayton,       Cashier, 

Highland  Park  National  Bank, 
Des  Moines,  Iowa. 

Dear  Sir,  —  Your  statement  of  account  with 

vouchers  to 189 _  _ ,  and  balance 

to _../(%?__,  credit  of  $ 

has  been  received  and  the  same  is  correct. 


The  depositor  will  please  fill  out  this  blank  and  return  it 
to  the  bank  at  once. 


§  410.  Pass  Book  is  not  Negotiable.  A  bank  pass  book 
is  not  negotiable,  and  it  would  not  be  even  if  the  by-laws 
declared  it  so.  A  pass  book  is  merely  an  account  kept  be- 
tween the  bank  and  the  depositor  and  it  would  not  be  nego- 
tiable by  any  agreement.  The  account  shown  by  a  pass  book 
is  no  different  than  the  accounts  of  merchants  kept  in  the 
same  way.  These  cannot  pass  from  hand  to  hand  "  by  order," 
though  they  may  be  assigned — so  may  a  bank  account. 

Neither  does  the  fact  that  an  old  pass  book  shows  a  bal- 
ance in  favor  of  the  owner,  necessarily  entitle  him  to  demand 
the  money.  The  amount  might  have  been  withdrawn  long 
before,  and  the  pass  book  never  left  at  the  bank  to  be  balanced. 
This  suggests  that  a  bank  should  keep  all  the  old  checks 
which  it  pays,  so  as  to  enable  it  to  balance  the  pass  book 
whenever  presented,  if  that  is  not  for  fifty  years. 

§411.  The  Clearing-house  Exchanges.  Some  banks  have 
racks  or  boxes  into  which  the  second  teller  places  the  checks 
on  other  banks,  received  for  deposit.  There  is  a  box  for  each 
bank,  and  the  checks  are  thus  kept  separate.  These  checks, 
of  course,  go  to  the  general  list,  and  constitute  the  receiving 
teller's  portion  of  the  exchanges  which  go  to  the  Clearing- 
house. In  banks  where  no  boxes  or  racks  are  to  be  had  some- 


228  THE  BUSINESS  OF  BANKING. 

times  a  teller  will  employ  a  separate  spindle  for  such  checks. 
In  this  way  they  are  always  assorted  and  need  but  to  be  placed 
on  the  general  list  to  be  ready  for  the  Clearing-house. 

§412.  Requiring  Certification.  Most  of  the  checks  re- 
ceived for  deposit  are  drawn  by  merchants  on  other  banks. 
Some  of  these  are  certified  before  deposit  but  many  are  not. 
If  a  depositor  is  known  to  be  all  right,  or  the  drawer  is  well 
known,  the  checks  are  taken  without  certification,  but  in  other 
cases  certification  is  required  before  the  checks  will  be  taken. 
Unknown  persons  often  give  checks  which  may  come  in  as 
deposit,  and  these  may  or  may  not  be  good.  The  drawee 
bank's  certification  adds  greatly  to  the  check's  negotiability, 
for  the  certifying  bank  is  responsible  even  though  the  certifi- 
cation was  made  wrongly. 

A  teller  may  have  reasons  for  requiring  checks  certified  of 
which  the  depositor  is  ignorant,  or  perhaps  cannot  be  informed. 

In  determining  regarding  what  checks  ought  to  be  certified, 
a  deposit  teller  must  use  great  caution,  good  judgment,  and, 
abo.ve  all,  be  prompt  in  his  decision.  The  interests  of  the 
bank  must  be  protected,  but  at  the  same  time  dealers  must 
not  be  unnecessarily  offended.  To  retain  the  good  will  of  the 
dealer  and  secure  the  safety  of  the  bank  at  the  same  time,  is 
often  a  difficult  task.  Of  course,  some  tellers  are  quick  to 
learn  men's  natures  and  make  friends  and  know  how  to  hold 
their  friendship;  while  others  are  gruff  and  are  likely  to  offend 
a  customer  at  any  time. 

§413.  Examining  the  Checks.  One  of  the  most  impor- 
tant duties  of  a  receiving  teller,  in  taking  deposits,  is  his  ex- 
amination of  signatures,  dates  and  indorsements.  What  we 
have  said  regarding  these  features  of  paying  checks,  in  the 
chapter  on  the  paying  teller,  will  apply  to  the  matter  here. 

The  depositor  should  be  required  to  indorse  each  check  in 
blank,  below  all  other  indorsements.  Sometimes  checks 
come  in  so  rapidly  that  the  teller  cannot  take  time  to  carefully 
examine  the  entire  check,  so  he  notices  especially  the  deposi- 


THE  RECEIVING  TELLER.  229 

tor's  indorsement,  for  this  is  the  key  to  discovery  should  there 
be  anything  wrong.  By  this  means  the  bank  is  enabled  to 
place  the  error  where  it  belongs  should  any  be  discovered  in 
the  future  history  of  the  check. 

Tellers  pay  checks  that  are  post-dated  and  those  not  dated 
at  all;  some  lack  proper  intermediate  indorsements;  some  have 
a  discrepancy  between  the  written  amount  and  the  marginal 
figures.  Sometimes  checks  are  taken  which  do  not  bear  any 
signature;  the  teller  sees  a  familiar  hand  writing  and  does  not 
discover  that  the  signature  is  lacking.  Some  get  into  the  wrong 
package  and  go  to  the  wrong  bank.  Some  are  fraudulent, 
and  some  are  kiting  checks.  In  case  of  these  or  any  other  of 
the  many  errors  which  are  liable  to  occur,  the  bank  makes 
reclamation  from  the  proper  party  at  once. 

§  414.  Examining  the  Money.  The  money  must  also  be 
examined  that  counterfeits  may  not  be  taken.  By  watching 
the  publications  which  make  a  business  of  describing  counter- 
feit money  a  teller  may  keep  himself  informed  regarding  "the 
spurious."  Sometimes  bank  notes  are  stolen  before  they  are 
signed.  The  thief  forges  the  signature  and  puts  the  notes 
into  circulation.  These,  together  with  all  other  counterfeits, 
so  far  as  known,  are  described  in  Underwood's  Counterfeit 
Reporter,  published  in  New  York  city. 

Regarding  the  provisions  of  the  National  Bank  Act  relating 
to  the  branding  or  stamping  of  counterfeit  money,  see  §  97. 

§  4  i  5.  Depositor's  Credit  Claim.  It  often  happens  that  a 
depositor  will  claim  a  larger  credit  than  is  shown  by  the  bank's 
books.  It  then  becomes  the  duty  of  the  second  teller  to  make 
a  thorough  examination  of  all  his  entries  and  figures,  with  the 
hope  of  finding  the  mysterious  discrepancy.  If  this  does  not 
reveal  the  supposed  error  he  sends  a  letter  to  every  dealer 
whose  deposit  may  have  been  erroneously  entered.  As  a  last 
resort  the  work  is  again  revised,  and  if  it  is  not  then  discovered 
the  cashier  is  notified. 

Sometimes  the  bank  corrects  the  alleged  error  and  pockets 


230  THE  BUSINESS  OF  BANKING. 

the  loss.  Not  long  ago  a  case  came  under  my  notice  where  a 
deposit  teller,  probably  through  carelessness,  credited  a  dealer 
with  $150  which  belonged  to  another  dealer.  The  bank  en- 
deavored to  correct  the  entry,  but  the  dealer  declared  that  it 
was  all  right,  that  he  made  the  deposit,  and  if  the  bank  could 
not  produce  the  deposit  ticket  which  represented  it,  why  that 
was  none  of  his  business.  So  he  threatened  to  sue  the 'bank. 
The  bank  allowed  the  claim  and  suffered  the  loss. 

§  416.  Over  and  Short.  It  would  be  a  miracle  if  no  mis- 
takes ever  occurred  in  the  balance  of  cash  on  hand.  Some- 
times, after  the  business  of  the  day,  the  cash  will  be  a  few 
cents  or  a  few  dollars  short;  at  other  times  there  will  be  too 
much  cash.  Some  banks  have  a  habit  of  throwing  these  into 
an  "over  and  short"  box  and  letting  the  excess  pay  the  deficits, 
and  no  account  of  them  is  incorporated  into  the  record  of 
the  day's  transactions.  Other  banks  have  an  "over  and 
short,"  or  a  "suspense"  account  into  which  these  are  posted. 
The  former  method  ought  to  be  condemned  by  all  bankers— 
the  latter  method  is  bad  enough.  Nothing  but  precision 
should  be  tolerated  in  the  manipulation  of  the  accounts  of  a 
bank.  "Eternal  vigilance  is  the  prime  virtue  of  a  banker." 
Of  all  business  men,  a  banker  ought  to  come  nearest  to  infal- 
libility. 

A  better  plan  regarding  this  "over  and  short"  problem  would 
be  to  open  an  account  with  each  teller,  in  which  the  deficits 
would  be  charged  and  any  surplus  credited,  under  the  date  of 
the  error.  These  accounts  might  be  closed  into  loss  and  gain 
account  at  stated  intervals. 

§417-  Taking  the  Deposits.  The  dealer  makes  out  his 
deposit  ticket  by  listing  the  amount  of  his  currency,  gold  and 
silver  separately;  the  checks  and  drafts  are  also  listed  sepa- 
rately and  the  entire  deposit  added.  This  deposit  ticket  and 
the  funds  to  be  deposited  are  placed  in  the  pass  book  where 
the  deposit  is  to  be  recorded.  The  teller  takes  the  de- 
posit out,  turns  the  book  face  down,  and  proceeds  to  count 


THE  RECEIVING  TELLER.  231 

the  money  and  examine  the  checks.  As  each  amount  is  found 
to  be  correct  he  places  a  check  mark  after  it  on  the  ticket. 
He  adds  the  amounts  and,  if  correct,  puts  his  initials  on  it  and 
enters  the  amount  in  the  pass  book,  and  is  ready  for  the  next. 
At  the  close  of  the  day,  when  a  great  many  depositors  are  waiting, 
they  observe  the  rule  of  "  first  come  first  served.'*  If  there  is  a 
rush,  and  a  well  known  dealer  makes  a  deposit  containing  a 
great  many  checks  and  drafts,  the  teller  does  not  stop  to  add 
the  column,  but  enters  the  amount  immediately  after  finishing 
checking  the  items.  These  are  then  added  after  the  bank 
has  closed  its  doors,  and  if  any  error  is  found  in  the  addition 
the  depositor  is  notified  and  the  correction  made. 

In  counting  bank  notes  the  teller  watches  sharply  for  coun- 
terfeits, but  no  sorting  is  necessary,  After  the  window  closes 
the  bills  are  sorted  into  packages  of  different  denominations, 
but  no  notice  is  taken  of  the  issuing  bank.  The  national  bank 
note  system  is  so  nearly  perfect  that  the  note  of  one  bank  is 
just  as  good  as  that  of  another. 

§  418.  A  Deposit  Defined.  A  deposit  is  a  bailment  in  which 
one  person  delivers  something  of  a  personal  nature,  without 
compensation,  to  another,  to  be  returned  when  called  for. 
The  former  is  called  the  depositor  and  the  latter  the  deposi- 
tary. A  deposit  is  a  thing  delivered  for  gratuitous  safe-keep- 
ing, and  the  title  remains  vested  in  the  owner.  Bank  deposits, 
however,  have  come  to  mean  a  certain  kind  of  loan.  It  is 
what  is  known  in  civil  law  as  a  mutuiim.  Money  deposited 
in  the  ordinary  way  becomes  the  property  of  the  bank,  and  the 
relation  of  depositor  and  depositary  becomes  that  of  debtor 
and  creditor. 

Of  course,  this  deposit-loan  is  made  from  time  to  time  and  is 
for  the  benefit  of  the  depositor,  and  may  be  demanded  at  such 
time  and  in  such  amounts  as  he  may  choose.  It  is  evidenced 
only  by  an  entry  in  the  pass  book,  and  is  to  be  paid  on  the 
depositor's  check  on  presentation,  without  notice. 

A  general  deposit  is  peculiar  to  the  banking  business,  and, 


~$2  THE  BUSINESS  OF  BANKING. 

as  already  stated,  consists  of  the  transfer  of  the  title  of  the 
money  of  the  depositor  to  the  bank.  The  loan  is  made  for 
the  depositor's  convenience,  and  in  consideration  of  such  loan 
the  bank  has  the  right  to  use  the  money  for  its  own  profit. 

'§  419.  Special  Deposits.  We  deal  almost  exclusively 
with  general  deposits,  but  deem  it  expedient,  since  national 
banks  have  power  to  receive  them,b  that  a  few  words  be 
inserted  regarding  special  deposits.  The  term  "  special  de- 
posit" includes  money,  securities  and  other  valuables  deliv- 
ered to  banks,  to  be  specifically  kept  and  the  identical  thing 
re-delivered  ;  and  it  is  not  confined  to  securities  held  by  banks 
as  collaterals  to  loans/ 

A  deposit  is  general  unless  the  depositor  makes  it  special, 
or  deposits  expressly  in  some  particular  capacity. 

There  is  another  kind  of  a  special  deposit.  This  is  a  de- 
livery of  property,  to  be  returned  when  demanded,  but  the 
keeping  is  to  be  paid  for.  In  these  cases  the  bank  must  use 
a  greater  degree  of  diligence  and  is  responsible  for  a  less  de- 
gree of  negligence. 

§  420.  Loss  of  Special  Deposit.  When  bonds,  securities, 
etc.,  are  deposited,  as  a  special  deposit,  the  bank  is  liable  for 
gross  negligence  only.  It  is  bound  to  exercise  only  slight 
diligence — that  care  which  a  person  of  less  than  ordinary  pru- 
dence is  supposed  to  exercise  over  his  own  goods.  If  a  spe- 
cial deposit  is  lost  or  stolen  the  bank  is  not  liable  unless  it 
suffered  the  loss  to  occur  by  its  gross  neglect.  The  bank, 
taking  no  pay,  is  not  bound  to  use  any  special  or  extraordi- 
nary means  to  protect  the  property.  In  fact  some  authorities 
hold  that  in  cases  of  this  kind  the  bailee  is  only  liable  for  a 
want  of  that  care  exercised  by  the  most  inattentive.  Of 
course  the  degree  of  care  depends  upon  the  nature  of  the 
property.  A  bag  of  corn  would  not  require  so  much  attention 
as  a  bag  of  diamonds.  And  more  care  would  be  required  in 

11  Bank  v.  Rex,  89  Perm.,  308. 

c  Bank  v.  Graham,  100  U.  S. ,  699  ;  Paine's  Banking  Laws,  p.  534. 


THE  RECEIVING  TELLER.  233 

a  locality  where  robbers  are  numerous  than  where  there  are 
none. 

In  one  case  a  special  deposit,  consisting  of  a  bag  of  gold  coin, 
was  stolen  by  the  cashier  of  the  bank.  The  bank  was  held 
not  liable,  because  the  theft  was  a  private  act  and  not  the 
act  of  the  bank.  It  was  in  no  way  connected  with  his  em- 
ployment in  the  bank,  for  his  official  duty  was  merely  to 
close  the  door  of  the  vault  when  the  business  of  the  day  was 
over.  The  bank  would  be  no  more  answerable  for  this  than 
for  the  cashier's  villainy  in  any  other  way. 

In  these  special  deposits  the  articles  are  left  at  the  risk  of 
the  depositor,  and  do  not  enter  into  the  business  of  the  bank 
at  all.  And,  being  a  bailment  merely  for  safe  keeping  for  the 
bailor's  benefit,  and  without  compensation,  the  dishonest  act 
of  a  clerk  or  teller,  when  in  no  way  connected  with  his  em- 
ployment, does  not  render  the  bank  responsible.  Of  course 
the  bank  might  be  responsible  for  gross  neglect  in  not  dis- 
charging a  clerk  after  discovering  that  he  was  dishonest. 
What  constitutes  that  degree  of  negligence  which  will  render 
a  bank  liable,  is  a  question  of  fact  to  be  determined  in  each 
case. 

If  a  cashier  should  sell  a  special  deposit  and  use  the  pro- 
ceeds in  the  business  of  the  bank,  the  bank  would  be  liable 
for  it  knew,  or  could  have  known,  of  such  fraudulent  action; 
but  if  the  cashier  appropriated  the  proceeds  to  his  own  use, 
unless  the  bank  had  reasonable  grounds  to  suspect  his  integ- 
rity, it  would  not  be  liable. 

§  421.  Checks  Drawn  on  the  Depositories.  If  a  check  is 
deposited  in  the  drawee  bank  by  one  of  its  customers,  it  is 
considered  the  same  as  payment  in  any  other  form.  If  the 
drawer's  account  is  overdrawn  by  such  deposit,  the  bank  can- 
not charge  the  depositor  with  it  after  it  has  once  been  cred- 
ited to  him.  The  bank  has  the  means  of  knowing  the  con- 
dition of  the  drawer's  account  and  if  it  pays  his  paper  it  must 
look  to  him  for  reclamation.  The  act  of  crediting  is  equiv- 


234  THE  BUSINESS  OF  BANKING. 

alent  to  payment,  and  surely  if  it  paid  the  money,  it  could 
not  claim  it  of  the  payee. 

When  a  check  drawn  on  another  bank  is  received  from  a 
depositor,  the  bank  can  recover  of  him  as  an  indorser  if  the 
check  is  not  paid  when  presented  through  the  Clearing-house, 
or  otherwise,  to  the  drawee  bank. 

§  422.  Uncurrent  Bank  Notes.  If  a  bank  receives,  on 
deposit,  notes  of  a  closed  or  insolvent  bank,  it  cannot  charge 
the  loss,  if  any,  to  the  depositor.  When  a  bank  note  is  given, 
in  good  faith,  without  objection,  in  payment  of  any  obliga- 
tion or  on  deposit,  and  no  agreement  is  made  regarding  the 
matter,  the  person  taking  such  note  takes  all  responsibility  of 
loss  from  the  then  or  future  insolvency  of  the  issuing  bank. 

The  receiving  party  assumes  the  risk  of  insolvency  and  if 
there  is  a  loss  he  has  no  remedy  against  the  person  from 
whom  the  notes  were  received.  In  one  or  two  states,  how- 
ever, the  rule  is  that  if  the  bank  is  insolvent  at  the  time  of 
payment,  though  both  parties  are  ignorant  of  the  fact,  the- 
notes  may  be  returned  and  other  money  obtained  in  their  stead. 

§  423.  Deposit  Made  through  Fraud.  If  a  deposit  is  taken, 
under  such  circumstances  as  to  constitute  a  fraud  on  the 
depositor,  he  will  be  permitted  to  recover  the  deposit.  For 
instance,  if  a  bank  is  insolvent  and  receives  a  deposit  from  a 
dealer  who  is  ignorant  of  such  insolvency,  he  can  recover  the 
amount. 

In  a  like  manner  he  can  recover  from  the  assignee,  if  he 
gives  his  property  to  an  insolvent  bank,  with  an  understand- 
ing that  it  is  to  be  returned  if  the  bank  is  not  restored  to 
solvency. 

If,  however,  both  parties  are  ignorant  of  the  bank's  insolv- 
ency, the  deposit  cannot  usually  be  recovered.  And  this  is 
especially  so  when  the  deposit  is  a  check  on  another  bank 
and  is  credited  to  the  depositor  and  sent  on  its  way  to  the 
drawee  bank  for  collection  before  the  deposit  bank  fails,  or 
knows  its  true  condition.  And  even  though  the  officers  knew 


THE  RECEIVING  TELLER.  235 

that  the  bank  was  in  a  close  place,  but  supposed  that  it  would 
be  able  to  maintain  its  credit,  and  there  was  no  fraudulent 
intention  on  their  part,  they  would  be  under  no  obligation  to 
apprise  the  dealer  of  the  condition  of  their  affairs,  and  in  the 
event  of  failure  such  dealer  must  be  considered  the  same  as 
any  other  general  creditor  of  the  association. 

§  424.  Banking  Hours.  Banks  have  what  they  are  pleased 
to  call  "banking  hours,"  during  which  time  they  transact  the 
business  of  banking  with  the  public.  If  a  dealer  comes  in  the 
back  way  and  makes  a  deposit  after  banking  hours  and  it  is 
entered  the  same  as  a  deposit  made  during  banking  hours,  the 
relation  between  the  parties  does  not  change,  but  a  different 
treatment  of  such  deposits  would  change  the  relation,  as  in 
banks  where  such  deposits  are  entered  in  a  separate  place  of 
deposit  in  a  counter  book,  and  the  funds  not  mingled  with  the 
regular  funds  of  the  bank,  the  title  of  the  deposit  does  not 
change  from  the  depositor  to  the  bank  until  the  next  day  when 
the  customer's  account  is  properly  credited. 

In  a  case  of  this  kind  the  bank  failed  before  the  next  day 
and  the  court  held  that  the  depositor,  and  not  the  bank,  was 
the  rightful  owner.  If,  however,  the  failure  does  not  occur 
until  the  next  day,  after  the  debtor's  account  has  been  prop- 
erly credited,  he  has  no  more  rights  than  any  other  creditor. 

§425.  Forced  Deposits.  A  bank  is  under  no  legal  obli- 
gation, like  a  common  carrier,  or  an  inn-keeper,  to  receive  de- 
posits against  its  wish.  A  bank  can  no  more  be  compelled  to 
do  business  with  any  one  who  may  present  himself,  than  any 
individual  can  be  compelled  to  make  a  contract.  A  bank  may 
select  its  own  dealers  and  may  refuse  such  as  it  pleases. 

And  whenever  a  bank  chooses,  it  may  close  the  account  of 
any  dealer,  and  to  do  this  it  has  only  to  tender  him  the  amount 
on  deposit  to  his  credit  and  refuse  to  have  any  further  dealings 
with  him. 

§  426.  Interest  on  Deposits.  Ordinary  banks  of  deposit 
do  not  usually  pay  interest  on  deposits.  Of  course,  by  special 


236  THE  BUSINESS  OF  BANKING. 

agreement,  even  a  national  bank  may  pay  interest.  But  in 
any  case,  if  the  bank  agrees  to  pay  a  deposit  at  a  specified 
time  and  fails  to  so  pay  but  uses  the  money,  it  is  liable  for 
interest  the  same  as  other  agents.  Or  if  a  deposit  is  demanded, 
the  bank  is  liable  for  interest  so  long  as  it  remains  unpaid. 


CHAPTER  IX. 


THE  NOTE  TELLER. 


5433.   Abolition  of  the  protest, 

434.  Protesting  collection  paper. 

435.  Other  duties  regarding  protest. 

436.  How  to  keep  notes. 


§427.  General  view. 

428.  The  letters. 

429.  Notices. 

430.  Errors  in  his  cash. 

431.  Stamping  "Paid." 

432.  Protesting. 

1.  When  necessary. 

2.  When  not  necessary. 


§  427.  The  note  or  third  teller  receives  the  money  for  all 
notes  payable  at  the  bank.  In  an  ordinary  sized  bank  this 
duty  is  performed  by  the  second  teller.  As  a  usual  thing  the 
note  teller  does  not  have  charge  of  the  notes  until  the  morn- 
ing of  the  day  of  their  maturity.  This  is  especially  so  in 
large  banks* 

The  notes  are  of  two  kinds,  those  left  at  the  bank  for  col- 
lection for  the  credit  of  the  owners,  called  collection  notes; 
and  those  which  the  bank  has  bought — discounted — called 
bills  discounted  or  bills  receivable. 

On  the  morning  of  the  day  of  their  maturity,  the  discount 
clerk  hands  the  bills  discounted  to  the  note  teller.  These 
are  usually  in  a  package  and  the  total  amount  of  the  notes 
stated  on  the  strap,  and  when  collected  this  total  amount  is 
credited  to  ''Bills  Discounted"  in  the  general  ledger.  If 
there  are  those  which  are  not  collected,  of  course,  the  amount 
to  be  so  credited  is  reduced  just  that  much. 

In  the  same  way  the  collection  clerk  hands  to  the  note  tel- 
ler the  maturing  notes  which  he  has,  with  a  ticket  for  each 


238  THE  BUSINESS  OF  BANKING. 

owner  of  notes.  These,  when  collected,  are  credited  to  the 
owners,  and  the  amount  becomes  a  general  deposit. 

When  the  notes  are  received,  the  note  teller  makes  an  en- 
try of  them  in  his  book,  and  is  then  ready  to  receive  payment 
whenever  the  payer  appears.  The  notes  marked  payable  at 
the  bank  are  kept  in  the  bank,  while  those  payable  at  different 
points  in  the  city  are  sent  out  with  the  messenger  for  presen- 
tation. 

§  428.  The  Letters.  If  there  are  notes  to  be  collected  at 
a  bank  in  another  city,  the  note  teller  must  send  these  out  in 
time  to  reach  the  collecting  agent  a  few  days  before  maturity. 
To  do  this  properly  he  usually  reaches  the  bank  in  time  to 
make  his  entries  of  remittances  for  the  morning  mail  before 
the  bank  is  open  to  the  public. 

Different  forms  are  used  for  remitting  these  notes.  Here  is 
one  which  is  sometimes  used  : 

FIRST  NATIONAL  BANK. 

DES  MOINES,  IA.,  June  13,  189*. 
C.  L.  Cory,  Cashier, 

Wheeler  Nat  I  Bank, 

Le  Mars,  Joiva. 

DEAR  SIR, — Inclosed  find  for  collection  for  our  credit : 

Brownell on  Hesla 30  ds $    560.00 

Trumbauer 60  ds 1,346.00 

Ross Jan.  7 230.00 

White D anbury Jan.  10 750.00 

Gwynn .Sioux  City Sight 101.80 

Yours  truly, 

HENRY  BELL,  Cashier. 

Explained  out  in  full  these  items  mean  notes  and  drafts  as 
follows : 

Brownell  &  Co.,  draft  on  S.  O.  Hesla  at  30  days  sight, 
$560. 


THE  NOTE  TELLER.  239 

C.  M.  Trumbauer,  note  due  in  60  days  from  date,  $1,346. 

Ross  Bros.,  note  due  Jan.  7,  $230. 

F.  E.  White,  note  payable  at  D anbury,  Jan.  10,  $750. 

Draft  on  R.  M.  Gwynn,  Sioux  City,  sight,  $191.80. 

§429.  Notices.  Formerly  banks  sent  notices  to  the  payer 
of  the  coming  maturity  of  his  note.  This  was  sent  a  week  or 
so  before  the  last  day  of  grace.  In  large  banks  this  is  no 
longer  done,  as  a  business  man  is  supposed  to  know  when  his 
notes  are  due  and  make  arrangements  to  meet  them  at  the 
proper  time.  In  small  and  ordinary  sized  banks  this  custom 
is  still  kept  up.  In  many  places  merchants  make  their  notes 
payable  at  any  bank  in  town,  and  in  such  cases  they  must 
have  notices  or  they  would  not  know  where  the  notes  were  at 
maturity.  Again,  in  cases  where  notes  do  not  state  where 
they  are  payable  and  have  been  left  at  a  bank  for  collection, 
notice  would  be  necessary  to  warn  the  debtor  where  he  may 
find  his  note  at  the  time  payment  is  due. 

§  430.  Errors  in  His  Cash.  The  note  department  requires 
as  much  vigilance  as  any  department  of  a  bank.  Men  forget 
where  or  when  their  notes  are  payable  and  the  amount.  No- 
tices are  delivered  to  wrong  persons,  and  many  other  irregu- 
larities are  sure  to  happen.  The  teller  keeps  all  his  letters, 
notices,  memoranda,  etc.,  until  his  cash  is  balanced  at  the  close 
of  the  day.  These  may  assist  his  memory  materially  should 
any  errors  occur. 

§  431.  Stamping  "Paid."  When  a  note  is  paid,  the  tel- 
ler stamps  the  word  ' '  Paid,' '  and  usually  the  name  of  the  bank 
and  the  date,  across  the  face  of  it. 

"  Where  a  bill  or  note  is  paid  it  should  either  be  destroyed 
or  some  memorandum  should  be  made  upon  it  unequivocally 
indicating  that  it  has  been  cancelled.  *  *  *  For  unless  payable 
at  a  specific  time,  the  fact  that  it  was  over  due  might  not  be 
apparent  from  its  face,  and  the  parties  to  it  would  incur  risk 
of  liability  to  a  bona  fide  purchaser  without  notice."1 

"Daniels  on  Neg.  Instruments,  ^  12350. 


240  THE  BUSINESS  OF  BANKING. 

It  is  the  duty  of  banks  and  other  payees  to  stamp  this  mem- 
orandum on  paid  notes  and  drafts,  and  such  stamp  does  not 
affect  a  recovery  from  the  indorsers.  The  stamp  is  a  mere  ac- 
knowledgement of  the  receipt  of  the  money. 

§432.  Protesting.  A  protest  is  a  formal  declaration  in 
writing  made  by  a  notary  public,  stating  that  the  within  note, 
or  bill,  has  been  presented  for  payment,  or  acceptance,  and 
payment,  or  acceptance,  refused.  The  object  of  the  protest 
is  to  hold  the  secondary  parties  liable  for  the  payment.  To 
do  this  they  must  have  the  proper  notice  within  reasonable 
time  after  dishonor.  To  be  within  a  reasonable  time  the  pro- 
test must  usually  be  made  not  later  than  the  day  following 
the  last  day  of  grace.  Usually  paper  for  protest  is  handed  to 
the  notary  immediately  after  dishonor — on  the  day  of  ma- 
turity. 

1.  When  Necessary.     It  is  positively  necessary  to  protest 
all  foreign  bills  of  exchange,  for  non-acceptance   or   non-pay- 
ment.     There  may  be  an  exception  to  this  rule,  however,  as 
when  protest  is  waived  by  the  party  to  be  charged,  or  where  it 
is  impossible  to  find  a  notary  public. 

2.  When  not  Necessary.      Unless   made  so   by   statute,  it 
is  not  necessary  to  protest  an  inland  bill,  nor   a  promissory 
note.     Notice   may  be  given  to  the  indorsers  by  the  holder. 
This  is  quite  as  effective  as  a  regular  protest,  but  the  evidence 
of  the  facts  stated  may  not  be  as  readily  furnished.     A  protest 
by  a  notary  public  is  supposed  to  have  a  right  of  way  in  the 
courts,  and  it  needs  no  witnesses.      It  is  conclusive  evidence  ; 
and  in  consideration  of  this  fact,  inland  bills  and  promissory 
notes  are  usually  protested  the  same  as  foreign  bills.      This  is 
especially  so  with  banks. 

§  433.  Abolition  of  the  Protest.  The  protest  is  another 
feature  of  negotiable  paper  that  ought  to  be  modified  or  en- 
tirely abolished.  The  practice  of  protesting  varies  greatly  in 
the  different  states,  and  the  principles  are  not  clearly  settled 
even  throughout  a  single  state.  A  protest  applies  strictly  to 


.    THE  NOTE  TELLER.  241 

foreign  bills  ;  but  an  inland  bill  or  any  negotiable  paper  may 
be  protested,  and  there  is  a  general  practice  of  protesting  all 
such  instruments.  In  fact  but  little  difference  exists  in  pro- 
testing them,  yet,  there  is  no  special  reason  for  protesting 
even  a  foreign  bill.  This  usage  was  founded  on  sound  reason, 
but  the  reason  has  long  ago  disappeared.  The  reason  for  a 
protest  was  to  have  sufficient  evidence,  in  a  trial,  of  present- 
ment or  demand,  but  the  changes  in  business  no  longer  re- 
quire such  formal  evidence.  A  notice  to  all  the  parties 
interested  is  quite  sufficient,  and  instead  of  extending  the 
practice  of  protesting  to  all  business  paper,  it  should  be  en- 
tirely abolished.  Thus  money  and  trouble  would  be  saved 
and  another  avenue  be  closed  against  those  who  wish  to  escape 
payment  of  their  paper  whenever  any  irregularity  is  dis- 
covered. 

§  434.  Protesting  Collection  Paper.  When  paper  is  left 
for  collection  definite  instructions  should  be  had  from  its 
owner  regarding  the  course  to  pursue  in  case  of  non-payment. 
If  no  such  instructions  are  obtained  the  bank  will  send  it  to 
protest.  This  is  done  whether  there  are  any  indorsers  or  not. 
It  is  a  common  rule  to  protest  all  unpaid  paper  unless  there 
are  instructions  to  the  contrary. 

§435.  Other  Duties  Regarding  Protest.  After  the  last 
payer  is  dismissed,  the  note  teller  closes  his  gate,  erases  from 
his  cash  book  and  tickler  all  the  unpaid  notes,  which  he  passes 
to  the  cashier  for  examination  before  turning  them  over  to  the 
notary.  No  dishonored  paper  should  be  allowed  to  go  to  pro- 
test until  it  has  been  shown  to  the  cashier.  Before  resorting 
to  such  a  disagreeable  last  resort,  the  bank  should  be  sure 
that  it  has  discharged  every  duty  which  it  owes  to  the  paper. 
Many  suits  of  damage  and  much  ill  feeling  result  from  unwise 
protests. 

§  436.  How  to  Keep  Notes.  Banks  usually  use  great 
care  in  handling  notes,  and  often  have  a  covering,  properly 
labeled,  for  each  note. 


242  THE  BUSINESS  OF  BANKING. 

The  following  suggestions  regarding  the  keeping  of  notes 
are  from  J.  H.  Skinner,  of  Valparaiso,  Indiana: 

"There  seem  to  be  two  systems  of  keeping  notes  in  dif- 
ferent banks.  In  the  one  the  pockets  of  the  note  case  are 
labeled  with  the  different  letters  of  the  alphabet.  This 
arrangement  has  the  advantage  of  making  it  easy  to  find 
a  note  when  wanted.  The  other  method  is  to  label  the 
pockets  of  the  note  case  with  the  months  of  the  year,  reserv- 
ing one  pccket  for  demand  notes,  and  one  also  for  over  due  notes. 
Here  we  have  the  notes  arranged  handily  for  notifying  the 
payers  shortly  before  they  are  due,  and  we  can  easily  look 
ahead  at  any  time  to  see  what  money  is  coming  in  in  the  near 
future.  On  the  other  hand,  the  latter  arrangement  is  not  con- 
venient for  the  purpose  of  finding  any  particular  note  when 
wanted. 

"  To  eliminate  this  difficulty,  a  pocket  index  book  may  be 
purchased,  that  is,  a  rather  large  and  thick  pass  book  indexed 
clear  through,  such  as  stationers  usually  retail  at  about 
twenty-five  cents.  It  will  be  well  to  select  one  having  a 
single  red  date  line  ruled  about  an  inch  or  half-inch  from  the 
left  margin  of  each  page.  Commence  with  the  January 
notes ;  take  them  from  the  note  case  and  index  them  in  this 
book.  Place  the  name,  properly  transposed,  on  the  top  line 
commencing  at  the  left  hand  margin.  In  the  center  of  the 
next  two  spaces,  and  at  the  right  of  the  date  line,  write 
the  number  of  the  note  above,  and  the  month  when  due  be- 
low, in  the  form  of  a  common  fraction.  Use  three  lines  for 
every  name,  except  that  regular  borrowers  may  require  more 
space. 

ILLUSTRATION. 

Allen,  William  E. 

2106         2144    ' 
Feb.          Demand. 

Ashmore,  John 

2 1 02          5164 
Overdue.     April. " 


CHAPTER  X. 

THE  DISCOUNT  CLERK. 


§437.  General  view. 

438.  Discounts. 

439.  The  offering  b«t>k. 

440.  Numbering  and  tutting. 

441.  Calculating  time. 

442.  Discount  book. 


§444.  The  tickets. 

445.  Collateral  securities. 

446.  Changing  collaterals. 

447.  Responsibility  for  loss  of  collat- 

erals. 

448.  Re-discounts. 


443.  The  ticklers. 

§  437.  The  position  of  discount  clerk  is  one  requiring  a 
man  with  sound  judgment  and  quick,  keen  perceptive  faculties, 
and  one  who  can  calculate  with  accuracy  and  great  speed. 
To  make  a  success  of  his  work  he  ought  to  be  systematic  in 
his  records,  employing  all  short  methods  which  will  be  of 
assistance  to  him. 

He  is  usually  considered  to  stand  an  equal  chance  with  the 
paying  teller  for  the  position  of  cashier. 

The  position  is  one  of  great  importance  to  the  bank,  and 
requires  a  man  who  knows  a  great  deal  about  banking,  and  is 
willing  to  learn  more. 

The  discount  clerk  has  possession  of  the  greater  part  of  the 
notes  belonging  to  the  bank.  He  has  an  apartment  in  which 
these  are  deposited  and  thus  kept  in  his  immediate  custody. 
If  any  officers  of  the  bank  want  to  examine  any  notes  they 
must  do  so  in  his  presence.  He  is  held  responsible  for  the 
notes,  and  by  this  method  he  alone  is  liable  for  any  irregu- 
larities. 

He  is  in  frequent  intercourse  with  the  customers  of  the 
bank.  He  is  interviewed  by  those  who  wish  to  borrow,  and 


243 


244  THE  BUSINESS  OF  BANKING. 

has  to  advise  applicants  regarding  the  disposition  of  their 
offers.  He  can,  of  course,  make  his  answers  short  by  saying 
''Accepted,"  or  "  Rejected." 

§  438.  Discounts.  Regarding  the  nature  of  loans  made 
by  banks,  see  the  chapter  on  cashier.  We  have  seen  that  the 
greater  part  of  a  bank's  profits  come  from  loaning  money. 
Loans  are  called  discounts,  because  the  interest  is  taken  in 
advance  and  only  the  proceeds  paid  or  credited  to  the  bor- 
rower. This  is,  of  course,  charging  interest  on  interest,  but 
the  law  allows  banks  to  do  this,  at  the  legal  rate,  without  ren- 
dering themselves  liable  for  usury. 

In  well  managed  banks  the  greater  part  of  the  loans  are 
made  so  as  to  mature  in  sixty  days.  Some  are  made  for 
shorter  time  and  some  for  longer,  but  sixty  days  is  about  the 
average.  A  bank  could,  therefore,  loan  each  day  one-sixtieth 
of  its  loanable  funds.  In  this  way  the  amount  maturing  each 
day  would  furnish  funds  for  other  loans,  and  the  loanable 
funds  would  thus  be  turned  every  two  months,  or  six  times  a 
year.  The  greater  amount  of  discounts  consists  of  business 
paper,  for  the  primary  object  of  banking  is  the  promotion  of 
commerce.  It  is  this  paper  that  the  board  of  directors  is 
called  upon  to  buy.  A  discount  clerk  does  not  pass  upon  any 
paper  offered.  This  is  the  principal  duty  of  the  board,  and 
there  is  where  it  should  be  passed  upon.  The  directors  should 
not  give  full  authority  to  any  officer  to  discount  whatever  paper 
such  officer  should  choose  to  take.  This  throws  all  the  respon- 
sibility on  one  man,  and  directors  are  chosen  so  as  to  divide 
the  responsibility  and  thus  insure  safety  to  the  association. 
Directors  who  are  not  willing  to  do  their  share  of  the  work 
ought  to  resign,  and  a  bank  official  who  wants  to  do  every- 
thing and  take  all  the  responsibility  ought  to  embark  in  some 
other  business. 

§  439.  The  Offering  Book.  The  discount  clerk  neither 
receives  nor  pays  out  any  of  the  bank' s  money.  His  duty  con- 
sists chiefly  in  recording  offerings  and  keeping  the  records  of 


THE  DISCOUNT  CLERK.  245 

all  discounts  and  loans.  He  is  also  occupied  a  part  of  his 
time  in  interviews  with  customers  regarding  their  offerings. 

Many  banks  do  not  have  an  offering  book,  but  the  customer 
is  given  his  money  or  credit  and  the  record  goes  at  once  to  the 
regular  books.  This  may  be  the  quickest  way  to  dispose  of 
the  matter,  but  it  is  by  no  means  the  best  way.  An  entry 
in  the  offering  book,  giving  all  the  leading  facts,  would  avoid 
any  future  misunderstandings  or  mistakes  which  might  occur. 
Misunderstandings  are  always  turning  up.  Two  memories 
never  agree.  The  officers  forget.  But  if  it  is  all  recorded 
there  can  be  no  mistakes  of  this  kind.  This  is  especially  so 
in  banks  where  the  board  does  not  meet  but  once  or  twice  a 
week,  and  is  required  to  see  the  paper  before  granting  the 
loan.  In  some  banks  the  board  meets  daily,  and  in  others, 
where  the  president  or  cashier  has  authority  to  pass  on  what 
paper  he  knows  is  all  right,  the  customer  is  speedily  told 
whether  his  paper  will  be  accepted  or  not.  In  banks  of  this 
kind  the  offering  book  many  be  entirely  discarded.  In  most 
cases,  however,  where  the  officers  pass  on  paper,  they  submit 
it  to  the  board  at  the  next  meeting  for  approval.  This  sub- 
mission can  best  be  made  from  a  well  kept  offering  book. 

The  offering  book  contains  columns  for  the  number,  date  of 
offer,  offered  by,  maker  or  drawee,  indorsers  and  collateral,  pay- 
able at,  amount,  days  to  run,  due  date,  rate,  accepted,  declined, 
and  remarks.  Some  banks  may  have  different  forms.  All 
offerings,  whether  rejected  or  already  accepted,  should  be  kept 
in  this  book.  This  enables  the  directors  to  ascertain  all  the 
essential  facts  which  may  aid  them  in  properly  conducting  the 
business. 

§  440.  Numbering  and  Timing.  As  soon  as  paper  is  ac- 
cepted the  discount  clerk  examines  it  for  filing  and  general 
character.  He  then  numbers  it  on  the  back  and  end  with  red 
ink,  giving  each  note  a  number  corresponding  to  the  number 
under  which  it  is  recorded  in  the  tickler  and  register.  He  also 
calculates  the  time  and  writes  the  due  date,  with  the  number, 
on  the  back. 


246  THE  BUSINESS  OF  BANKING. 

Some  banks  do  not  number  their  notes  and  are  careful  xiot 
to  mar  them  by  marks  of  any  kind,  even  so  much  as  a  pin 
hole,  so  that  if,  for  any  reason,  they  should  wish  to  dispose  of 
them  they  will  not  show  that  they  have  been  in  the  hands  of 
a  bank.  For  the  same  reason  a  bank  does  not  desire  to  have 
notes  drawn  payable  to  its  order.  A  maker  should  make  the 
note  payable  to  his  own  order  and  indorse  it  to  the  bank,  even 
if  it  goes  direct  from  his  hands  to  the  bank. 

§  441.  Calculating  Time.  Most  notes  are  timed  on  their 
face  by  the  maker,  though  the  bank  takes  no  notice  of  such 
record,  but  computes  the  time  for  itself.  A  bank  must  be  ex- 
act in  its  own  business,  and  if  a  maker  should,  intentionally  or 
unintentionally,  miscalculate  the  due  date  and  the  bank  should 
abide  by  such  calculation  and  not  make  demand  of  payment 
at  the  proper  time,  it  would  probably  be  held  liable  for  its 
laches. 

When  a  note  is  drawn  for  months  it  is  nominally  due  on  the 
day  of  the  month  corresponding  to  its  date,  counting  the  re- 
quired number  of  months  forward,  and  legally  due  three  days 
afterward.  For  example,  if  a  note  dated  May  7th  is  drawn 
for  four  months  it  is  due  four  months  after  May  7th,  or  Sept. 
7th,  adding  three  days  of  grace,  it  is  due  Sept.  loth. 

A  quick  method  for  timing  paper  drawn  for  months  is  to  add 
the  number  of  months  to  run  to  the  number  of  the  month  of 
date  and  this  sum  is  the  number  of  the  month  of  maturity. 
If  the  sum  thus  found  is  greater  than  twelve,  subtract  twelve 
and  you  will  have  the  proper  number.  For  example,  a  note  for 
nine  months  is  dated  Aug.  I  ith.  August  is  the  eighth  month. 
Add  9  and  8  and  subtract  12  and  we  have  5.  May  is  the  fifth 
month  and  the  note  is  due  May  nth-i4th. 

If  the  time  is  in  days  the  actual  number  of  days  must  be 
counted. 

Thus  a  note  dated  Jan.  3ist,  payable  in  one  month,  is  legally 
due  Mar.  3d  ;  but  a  note  dated  Jan.  3ist,  payable  in  30  days, 
is  legally  due  Mar.  5th,  or  in  leap  years  Mar.  4th. 


THE  DISCOUNT  CLERK.  247 

§  442.  Discount  Book.  Next  the  notes  are  entered  in  the 
discount  book  or  register.  This  is  the  most  important  book 
kept  by  the  discount  clerk.  In  it  is  entered  a  full  record  of 
all  discount  transactions.  It  is  ruled  with  columns  for  maker's 
name,  indorsers  and  collateral,  payable  at,  date,  time  to  run, 
discount  date,  rate,  discount,  exchange,  amount,  proceeds,  etc. 
There  are  many  forms  of  this  book,  each  bank  adopting  a 
form  suited  to  its  peculiar  mode  of  transacting  business. 

§443.  The  Ticklers.  As  soon  as  a  note  becomes  the 
property  of  the  bank  and  is  recorded  in  the  discount  book  just 
described,  it  is  entered  in  the  tickler.  A  tickler  is  so  named 
from  the  fact  that  it  assists  or  tickles  the  memory.  The  book 
is  ruled  with  sections  for  each  day  in  the  year,  and  each  note 
is  entered  under  the  date  of  its  maturity.  In  large  banks  a 
page  is  left  for  each  day.  This  book  is  ruled  so  as  to  give  a 
general  description  of  the  paper,  including  the  rate  and  date  of 
discount.  The  total  footings  of  the  tickler  will  show  the 
amount  of  "bills  discounted,"  and  the  proof  of  these  total 
amounts  is  taken,  at  least  as  often  as  once  a  month,  and 
proved  with  the  general  ledger. 

§  444.  The  Tickets.  System  is  good  everywhere,  and  espe- 
cially so  in  a  bank.  When  paper  is  figured  and  the  amount  of 
proceeds  ascertained,  a  ticket  or  memorandum,  is  made  out  so 
as  to  show  the  gross  and  net  amount  of  the  paper,  the  dates, 
time  to  run,  etc.  This,  handed  to  the  receiving  teller  when 
the  proceeds  are  to  be  credited  to  a  dealer,  or  to  the  paying 
teller  when  to  be  paid,  will  thoroughly  explain  the  matter. 
They  are,  however,  of  greater  convenience  to  the  bookkeeper 
than  any  one  else.  They  give  him  a  clear  insight  into  the 
whole  transaction. 

As  already  stated,  the  discount  clerk  does  not  pay  out  any 
of  the  bank's  money;  but  after  he  has  properly  figured  and  re- 
corded the  paper,  he  authorizes  the  paying  teller  to  pay  the 
net  proceeds  out.  He  should  do  this  by  a  properly  filled  out 
pay-loan  ticket.  Sometimes,  when  business  is  rushing  and 


248  THE  BUSINESS  OF  BANKING. 

there  are  many  customers  waiting,  the  discount  clerk  is  tempted 
to  give  the  paying  teller  verbal  orders  regarding  payments,  ex- 
pecting to  fill  out  the  proper  tickets  after  the  rush.  This  is 
an  exceedingly  poor  method.  A  paying  teller  ought  not  to 
make  any  payments  without  a  proper  voucher.  To  do  other- 
wise is  to  invite  error  and  confusion.  In  such  cases  the  money 
goes  out  voucherless.  It  may  be  that  the  clerk  will  remem- 
ber to  fill  out  the  ticket  and  it  may  be  that  he  will  not;  and  at 
night  the  paying  teller  is  short  in  his  cash.  Now  comes  a  hunt 
which,  of  course,  may  be  corrected  by  checking  up  the  work 
of  the  discount  clerk,  but  all  this  trouble  should  be  avoided. 
The  following  form  of  pay-loan  ticket  is  much  used  for 
the  purpose  described: 


June  20,  189^. 

Pay S.  A.  JENKINS $1,578.00 

Debit  Loan. 

R.  M.  GWYNN,  Discount  Clerk. 


Loans  made  by  a  bank  to  a  dealer,  are  generally  retained 
and  credited  to  the  account  of  the  borrower.  The  customer 
is  then  at  liberty  to  draw  against  the  amount  the  same  as  an 
ordinary  deposit.  In  cases  of  this  kind  the  discount  clerk 
passes  to  the  receiving  teller  a  credit-loan  ticket. 


June  20,  l  $$2. 

Credit  CHAS.  DUHIGG- —.$7,000 

Debit  Loan, 

R.  M.  GWYNN,  Discount  Clerk. 


THE  DISCOUNT  CLERK.  2_fj 

§  445.  Collateral  Securities.  We  have  already  noted 
that  banks  do  not  loan  money  on  real  estate  security.  A 
savings  institution  may,  with  impunity,  make  such  perpetual 
and  uncollectible  loans,  but  other  banks,  from  the  nature  of 
their  deposits,  must  have  easily  collected  and  short  time 
loans.  The  general  banking  associations  loan  money  on  per- 
sonal and  collateral  security.  The  bonds,  stock  and  other 
classes  of  paper,  held  by  banks  as  collateral  security,  are  usu- 
ally put  in  the  hands  of  the  cashier,  or  the  discount  clerk,  and 
kept  in  the  safest  place  in  the  bank.  Great  care  should  be 
taken  in  handling  them  that  they  be  not  torn  or  marred. 
Many  banks  cover  and  package  them,  and  then  store  them  in 
the  vault  in  small  tin  boxes,  or  apartment  drawers  made  for 
the  purpose.  They  should  be  so  systematically  arranged  that 
they  may  te  readily  referred  to  when  an  occasion  demands 
that  they  be  examined.  "The  condition  of  the  collaterals  in 
these  points  of  arrangement  and  tidiness  is  a  gauge  of  the  char- 
acter of  the  general  management  of  the  officer  in  other  points 
of  his  administration." 

§  446.  Changing  Collaterals.  During  the  course  of  a 
loan  many  changes  in  the  collaterals,  held  as  security,  are 
likely  to  be  made.  But  no  officer  should  give  up  to  a  dealer, 
either  in  the  way  of  exchange  or  at  the  time  of  payment,  any 
collaterals  held  by  the  bank  without  taking  a  receipt  for  the 
same.  If  a  change  is  made  a  form  like  the  following  would 
enable  the  teller  to  keep  his  part  of  the  records  intact,  and 
avoid  many  misunderstandings,  litigations,  and  losses: 


Memorandum. 

July  5,  1 89^. 

Received  150  Shares  C.  B.  &  Q.  R.R.  Co. 
Substitute,  150  Shares  C.  R.-L  &  P.  R.R.  Co. 

E.  W.  Ross  &  Co. 


250  THE  BUSINESS  OF  BANKING. 

When  coupons,  on  coupon  bonds,  held  as  security,  mature 
and  are  delivered  to  the  owner,  a  proper  receipt  should  al- 
ways be  taken. 

In  taking  on  time  paper  as  security  some  good  method 
should  be  adopted  to  avoid  these  becoming  due  without  the 
bank's  knowledge,  and  no  demand  being  made,  thus  releasing 
the  indorser.  A  good  plan  to  adopt  regarding  this  matter  is 
to  have  a  "bills  receivable  dummy,"  which  may  be  placed  in 
the  collection  or  discount  files. 

In  making  loans  on  collaterals  a  bank  manager  is  very  care- 
ful to  examine  thoroughly  every  item  of  security  taken.  But 
in  cases  where  notes  are  taken  as  security  there  is  likely  to  be 
a  great  deal  of  changing.  The  owner  sells  a  part  of  the  origi- 
nal collateral,  in  the  regular  course  of  business,  and  withdraws 
the  marketed  portion  and  substitutes  new  collateral.  These 
substitutes  are,  too  often,  taken  in  by  the  discount  clerk 
without  being  examined  by  the  manager,  and  thus  an  easy- 
going method  is  fallen  into  regarding  the  matter.  In  many 
cases  at  the  final  closing  up  of  the  loan  the  character  of  the 
collateral  has  entirely  changed.  Any  difficulties  regarding 
such  matters  may  be  avoided  by  a  systematic  record,  in  a 
book  arranged  for  the  purpose,  of  all  such  changes  of  securi- 
ties. The  cashier,  president  and  directors  may  then  examine 
all  these  changes,  and  approve  or  disapprove  them. 

§  447.  Responsibility  for  Loss  of  Collaterals.  I  cannot 
close  the  subject  of  collaterals  without  mentioning  the  follow- 
ing incident,  cited  by  an  eminent  authority,  to  illustrate  the 
question  of  responsibility  for  collaterals:  The  borrower  de- 
posited $75,000  worth  of  railroad  bonds  as  security  for  $50,- 
ooo.  As  the  banker  took  the  collaterals,  he  remarked:  "I 
suppose  you  fully  understand  that  we  are  not  responsible  for 
the  care  and  safety  of  these  bonds  beyond  the  exercise  of  due 
diligence  and  carefulness  as  custodian — the  exercise  of  the  same 
care  and  diligence  as  we  bestow  upon  our  own  securities  and 
cash  ?  These  bonds  are  your  own  property,  left  with  us  for 


THE  DISCOUNT  CLERK.  251 

your  own  convenience.  If,  after  taking  them  and  looking 
after  them,  they  are  burglarized  or  destroyed  the  loss  is  yours 
and  not  ours,  for  so  the  courts  have  many  times  ruled,  so  says 
'Jones  on  Collateral,'  'Morse  on  Banking,'  etc.,  and  so  rules 
custom,  equity,  common  law  and  common  sense." 

To  this  strong  statement  of  the  lender's  side  of  the  case 
the  borrower  replied  :  "You  have  my  property  as  a  pledge 
for  your  money.  I  shall  not  pay  your  money  until  you  return 
me  my  bonds  and  I  should  like  to  see  you  attempt  to  force 
me  to  do  so.  If  you  take  good  care  of  the  bonds  you  will  not 
lose  them;  and,  if  you  do  lose  them,  I  shall  hold  you  responsi- 
ble— shall  take  the  ground  that  you  have  been  careless, 
your  employees  dishonest,  your  vaults  insecure,  or  something 
of  that  sort,  and  in  that  event  I  shall  not  pay  your  note, 
Jones  or  no  Jones,  law  or  no  law,  to  the  contrary  notwith- 
standing." 

This  is  about  all  that  can  be  said  about  the  matter.  This 
is  where  the  matter  rests. 

§448.  Re-discounts.  It  sometimes  happens  that  a  bank 
discounts  more  paper  than  it  can  carry  and  properly  meet  the 
demands  of  its  dealers  for  funds.  In  such  cases,  in  order  to 
get  possession  of  more  funds  it  re-discounts  a  portion  of  its 
paper  with  other  banks.  In  other  words,  the  loans  which  it 
has  made  are  transferred  to  another  institution.  Any  large 
amount  of  re-discounts  is  usually  considered  an  indication  of 
poor  management  and  lack  of  judgment  in  making  loans. 


CHAPTER  XI. 

THE  COLLECTION  CLERK. 


§449.  General  view. 

450.  Leaving  paper  for  collection. 

451.  Foreign  paper. 

452.  Indorsement  for  collection. 

453.  The  collection  register. 

454.  The  tickler. 

455.  Notices. 

456.  "  With  exchange.  " 

457.  Days  of  grace. 

458.  The  C.  O.  D.  draft, 

459.  Taking  checks  in  payment  of 

collections. 


§460.     Collections  payable  at  a  bank. 

461.  Charging  up  through  the  clear- 

ings. 

462.  Collection  of  checks. 

463.  The  cross  check  system. 

464.  Collections  for   strangers,    or 

"  tramp"  collections. 

465.  Facilities  in  collections. 

466.  The  bank's  responsibility. 

467.  Collection  letters. 

468.  Rates  of  collection. 


§  449.  As  his  title  suggests,  the  collection  clerk  takes 
charge  of  all  the  paper  of  the  bank  left  by  dealers  and  others  for 
collection.  Great  numbers  of  notes  are  given  for  purchases  and 
debts  due,  and  a  great  many  of  these  find  their  way  into 
banks  for  collection.  It  is  well  understood  that  a  bank  is  able 
to  collect  a  note  or  draft  which  the  individual  owner  could 
not  collect.  Business  men  are  usually  very  careful  not  to 
incur  the  ill-will  or  mistrust  of  a  banker,  though  they  might 
not  care  what  other  business  men  think  of  them. 

Of  course,  many  of  the  notes  that  come  into  the  hands  of 
dealers  of  the  bank  are  offered  for  discount,  and  that  part  of 
the  work  has  been  explained  ;  but  others  are  placed  in  the 
bank  for  collection  and  their  future  history  will  be  traced  in 
this  chapter. 

§  450.     Leaving  Paper  for    Collection.     The   position   of 

collection  clerk  is  one  in  which  a  thorough  knowledge  of  nego- 
252 


THE  COLLECTION  CLERK.  253 

liable  paper  is  indispensable.  Such  clerk  ought,  likewise,  to 
be  well  informed  regarding  banking  generally.  In  order  for 
him  to  do  this  it  will  be  necessary  for  him  to  keep  up  a  regu- 
lar line  of  study  and  reading.  He  ought  to  read  regularly,  at 
least,  one  good  banking  journal,  such  as  Rhodes'  Journal  of 
Banking,  The  Bankers'  Magazine,  a  or  some  such  periodical.  A 
man,  in  any  line  of  work,  who  already  knows  so  much  that  he 
need  study  no  more,  is  a  failure,  and  one  who  thinks  there  is 
no  more  to  learn  is  ignorant  indeed. 

Many  of  the  collections  come  through  depositors  of  the 
bank,  and  these  should  be  accompanied  by  some  voucher  or 
memorandum.  The  method  employed  by  the  best  class  of 
business  men  is  that  of  always  sending  their  collections  to  the 
bank  in  a  formally  written  letter.  They  should  retain  a  copy 
of  such  letter  and  demand  an  acknowledgment  of  it  from 
the  bank.  Many  banks  make  a  record  of  all  paper  left  for 
collection,  in  the  back  of  the  dealer's  pass  book.  Men  who 
have  a  great  many  collections  have  a  book  especially  for  such 
records.  If  these  records  or  memoranda  are  not  had  at  the 
time  of  leaving  the  paper  for  collection  and  the  paper  is  lost 
or  mislaid,  trouble  is  sure  to  result.  The  bank  will  maintain 
that  it  never  had  the  paper  ;  the  dealer  that  he  left  it  with  the 
bank  ;  what  if  it  never  turns  up  to  settle  the  controversy? 

§451.  Foreign  Paper.  In  most  banks  the  collection  clerk 
attends,  also,  to  the  foreign  collections.  These  are  such  as 
are  payable  at  other  towns  and  other  banks,  and  must  be  sent 
out  for  collection.  He  sends  them  to  the  collecting  bank 
generally  about  two  weeks  before  they  are  due.  This  will 
give  the  collecting  bank  time  to  make  all  its  necessary  entries, 
serve  its  notices,  etc.,  before  the  paper  matures. 

In  large  banks  a  separate  register — a  foreign  collection 
register — is  kept  for  notes  payable  at  other  banks.  In  some 
banks  these  are  all  entered  in  the  regular  collection  register, 
and  a  column  is  provided  for  a  record  of  the  date  of  trans- 
mission, date  of  payment  or  return,  where  sent,  etc. 

a  Both  published  at  New  York  city. 


254  THE  BUSINESS  OF  BANKING. 

Most  banks  make  their  collections  direct,  though  some  make 
their  collections  for  a  certain  district  through  one  bank  which 
has  an  established  correspondence  throughout  such  territory. 
But  by  the  direct  method  the  paper  is  presented  more 
promptly,  the  returns  are  received  in  shorter  time,  and  thus  a 
stimulus  is  given  to  the  country  business. 

§452.  Indorsement  for  Collection.  When  paper  is  sent 
for  collection  to  another  bank  it  is  indorsed:  "  Pay  to  the 

order  of Bank,  for  collection  and  credit  of Bank, 

C.  E.  Carlton,  cashier."  Another  and  briefer  form  much  used 
is,  "  Pay  any  National  Bank,  or  order,  for  collection  for  ac- 
count of,  "  etc.  And  still  another,  which  has  just  been  adopted 
by  some  banks,  is,  "  Pay  for  account  of, "  etc. 

All  these  forms  are  considered  by  the  courtsb  as  qualified  or 
restrictive  indorsements.  It  is  viewed  as  nothing  more  nor 
less  than  a  warrant  of  attorney  authorizing  the  indorsee  to 
collect  the  amount  due  on  the  draft  for  the  indorser.  It  con- 
veys no  title  to  the  paper,  but  is  notice  to  all  persons  subse- 
quently dealing  with  the  paper  that  the  indorser  has  not 
parted  with  the  title  or  intended  to  transfer  the  ownership  of 
the  proceeds  to  another.  And  an  unbroken  succession  of  such 
indorsements  would  indicate  that  each  indorser  was  acting 
for  the  next  preceding  indorser,  until  the  first  indorser  is 
reached,  who  was  himself  an  agent  of  the  owner.  It  has  long 
been  held  by  the  courts  that  such  indorsements  are  restrictive, 
protecting  the  rights  of  the  owner. c 

When  collections  are  to  be  made  at  places  where  the  bank 
has  no  regular  dealer,  they  are  indorsed,  "for  collection  and 
remittance."  When  the  paper  is  paid  the  collecting  bank 
remits  at  once  by  a  check  drawn  usually  on  some  place  where 
a  surplus  of  exchange  is  created,  as  the  exchange  can  then  be 
worked  off  at  a  profit.  The  bank  owning  the  paper  usually 
instructs  regarding  the  place  on  which  the  remittance  shall  be 
drawn. 

b Central  R.  R.  Co.  T.  Bank,  73  Ga.,  383. 
c  Bankers'  Magazine,  April,  1892,  p.  807. 


THE  COLLECTION  CLERK.  255 

A  properly  written  letter  accompanies  all  paper  sent  for 
collection.  This  letter  states,  among  other  things,  whether 
the  paper  is  to  be  protested  or  not,  in  case  of  dishonor. 

§453.  The  Collection  Register.  The  collection  register 
is  the  principal  book  in  this  department.  All  collections  are 
entered  in  this  book,  from  the  face  of  the  paper,  as  soon  as 
it  is  received.  The  columns  are  arranged  so  as  to  exhibit  the 
various  parties  to  the  paper,  the  dates,  time,  amount,  ex- 
change, etc. 

§  454.  The  Tickler.  A  tickler,  as  already  explained  in 
the  chapter  on  discount  clerk,  is  kept  to  exhibit  the  maturity 
of  collections.  In  fact,  some  banks  do  not  keep  any  other 
record  than  the  tickler,  i.  *•.,  the  collection  tickler  is  used  for 
both  register  and  tickler.  The  amount  of  space  to  be  left  in 
the  tickler  for  each  day  depends  very  largely  on  the  amount 
of  collection  business  done  by  the  bank.  Large  banks  often 
have  from  800  to  1,000  collections  maturing  in  one  day. 
Some  may  have  but  a  few. 

When  the  collections  mature,  and  are  paid,  the  careful  col- 
lection clerk  will  see  that  the  proper  credit  is  given  on  the 
regular  books  of  the  bank.  He  then  cancels  the  entry  on  the 
collection  register  and  the  tickler. 

§  455.  Notices.  The  collection  clerk  usually  has  several 
printed  forms  of  notices  for  his  use  in  reminding  payers  of 
their  maturing  paper.  These  are  neatly  printed  on  a  slip  of 
paper  to  fit  the  envelope.  The  wording  is  a  matter  which  is 
easily  arranged : 

DES  MOINES,  IOWA,  Jan.  2j,  1892. 

You  are  requested  to  pay  your  note  for  $200.00,  due  this 
day  at  Des  Moines  National  Bank.  J.  E.  ADAMS, 

Cashier. 

For  accepting,  paying  acceptance,  etc.,  the  words  of  the 
notice  would,  of  course,  be  slightly  changed.  In  some  banks 
such  notices  specify  to  which  teller  to  apply. 


256  THE  BUSINESS  OF  BANKING. 

After  the  notice  is  properly  filled  in,  it  is  ready  to  be  served; 
this  should  be  done  at  the  proper  time  and  place.  Though 
banks  are  not  required,  by  law,  to  notify  the  payer  of  his  ma- 
turing paper,  yet  this  is  often  done.  When  a  party  makes  a 
written  promise  to  pay,  he  should  make  it  payable  at  some 
special  place,  and  at  maturity  have  the  money  there  to  pay  it, 
notice  or  no  notice.  But  where  custom  is  universal  among 
banks  to  give  these  notices  the  makers  have  a  right  to  expect 
them,  and  if  a  bank  fails  to  issue  them  it  is  guilty  of  negligence 
which  may  result  in  trouble,  or  perhaps  loss. 

A  method  which  will  commend  itself  to  banks  having  a  large 
number  of  collections,  is  to  make  out  the  notices,  direct  from 
the  face  of  the  notes,  at  the  time  the  paper  is  received.  These 
notices  are  then  placed  on  file  in  the  order  of  their  maturity, 
and  sent  out  when  maturity  draws  near.  It  is  easy  to  see  that 
notices  can  be  more  accurately  made  out  from  the  face  of  the 
paper,  than  from  the  books,  and  they  may  serve  to  correct 
errors  in  the  records. 

§456.  "  With  Exchange. "  Notes  are  sometimes  drawn 
"  payable  at-  -Bank  with  exchange,"  or  "  in  New 

York  exchange."  It  is  well  understood  that  negotiable  paper 
must  not  only  be  payable  in  an  amount  certain  and  payable 
absolutely,  but  payable  in  money — there  is  no  contingency. 
And  many  regard  the  phrases  just  referred  to  as  rendering  the 
paper  non-negotiable.  Payable  "with  exchange  on  New  York," 
means  that  the  promisor  agrees  to  pay  the  amount  of  the  note 
plus  the  cost  necessary  to  buy  a  draft  on  a  New  York  bank  for 
the  amount.  But  when  a  note  says  "payable  in  New  York 
exchange,"  the  payer  would  have  a  right  to  offer  in  payment 
any  draft  on  New  York  which  he  might  choose  to  tender. 
However,  this  latter  phrase  is  understood  to  mean  "with  ex- 
change." To  say  the  least,  they  are  both  out  of  place  in  a 
note  and  ought  to  be  discarded.  Banks  ought  to  refuse  to 
have  anything  to  do  with  paper  so  drawn,  and  perhaps  the 
objectionable  habit  would  be  soon  remedied. 


THE  COLLECTION  CLERK.  257 

§  457.  Days  of  Grace.  Days  of  grace  are  a  relic  of  the 
days  of  slow  transportation,  and  poor  facilities  for  the  trans- 
mission of  valuables.  They  were  days  of  favor,  allowed  the 
payer  of  a  note  or  draft,  or  more  especially  to  the  drawee  of 
a  foreign  bill,  to  enable  him  to  provide  cash,  and  at  the  time 
this  custom  arose,  these  collections  were  not  made  through 
banks,  but  had  often  to  be  sought  from  individuals.  By  cus- 
tom it  has  gradually  come  about  that  days  of  grace  are  legally 
a  part  of  the  time  the  evidence  of  debt  has  to  run. 

At  one  time  the  law  in  France  allowed  ten  of  these  grace  or 
favor  days.  Some  states  and  countries  now  allow  four, 
though  at  most  places  only  three  are  allowed. 

In  some  places  days  of  grace  have  been  abolished,  and 
bankers  and  business  men  have,  during  the  last  year,  started 
quite  a  crusade  against  them,  and  it  is  only  a  question  of  a 
short  time  until  they  will  be  abolished  throughout  the  entire 
American  states.  There  is  no  longer  any  reason  for  allowing 
them.  There  is  no  possible  objection  to  their  abolition,  and 
there  is  no  reason  why  they  should  not  have  been  abolished 
fifty  or  a  hundred  years  ago.  It  would  be  just  as  easy  for  the 
public  to  accustom  itself  to  paying  notes  on  the  last  day  men- 
tioned in  the  note  as  three  days  later.  In  other  words,  if  a 
man  wishes  thirty-three  days  for  his  note,  let  him  make  it  for 
thirty-three  days. 

But  days  of  grace  are  allowed  and  must  be  used  until  a 
change  is  made  by  statutory  enactment.  Interest  is  computed 
on  the  days  of  grace  the  same  as  on  the  days  for  which  the 
note  is  made.  It  is  well  known  that  the  holder  of  negotiable 
paper  is  not  obliged,  nor  can  he  be  compelled,  to  receive 
payment  before  maturity — before  the  last  day  of  grace.  And 
he  has  a  right  to  interest  for  the  days  of  grace  and  any  unex- 
pired  time,  should  he  consent  to  accept  payment  before  the 
last  day  of  grace. 

§  458.  The  C.  0.  D.  Draft.  When  a  consignment  of 
goods  is  sent  C.  O.  D.  by  freight,  the  agents  are  instructed  not 


258  THE  BUSINESS  OF  BANKING, 

to  deliver  the  goods  until  the  bill  of  lading  is  properly  surren- 
dered by  the  consignee.  The  consignor  draws  a  draft  on  the 
consignee  for  the  value  of  the  goods,  attaches  it  to  the  bill  of 
lading  and  sends  it  for  collection  to  some  bank  at  the  place 
of  destination. 

These  are  sometimes  called  documentary  bills.  Great  care 
must  be  exercised  in  handling  such  papers.  If  instructions 
are  given  to  surrender  the  bill  of  lading  only  on  payment  of 
draft,  care  should  be  exercised  that  the  proper  steps  are 
taken  to  get  such  payment.  The  bank  is,  for  the  time  being, 
custodian  of  the  merchandise;  and,  if  this  is  of  a  perishable 
nature,  neglect  on  the  part  of  the  bank  in  demanding  pay- 
ment may  cause  it  to  suffer  the  loss,  should  any  occur. 

If,  however,  the  paper  is  drawn  on  time,  its  acceptance 
entitles  the  drawee  to  the  bill  of  lading,  and,  therefore,  the 
possession  of  the  goods.  This  rule  is  not  universal,  especially 
among  country  bankers.  When  it  is  desired  that  the  goods  be; 
held  after  acceptance,  special  instructions  to  that  effect  should 
always  accompany  the  draft  and  bill  of  lading.  Many  banks 
have  taken  the  stand  that  they  must  have  specific  instructions, 
in  all  cases,  and  when  this  is  not  at  first  sent,  the  mail  or  tele- 
graph is  used  to  obtain  it,  and,  as  the  law  allows  twenty-four 
hours  for  the  acceptance  of  drafts,  such  instructions  can  be 
obtained  from  any  part  of  the  United  States.  This  method 
is  highly  indorsed  by  eminent  bankers,  as  the  only  really  safe 
course  of  action  in  regard  to  such  paper. 

§  459.  Taking  Checks  in  Payment  of  Collections.  A 
bank  goes  to  all  the  trouble  of  taking  on  a  lot  of  bonds,  or 
other  collateral,  as  security  for  a  loan,  and  then  gives  up 
everything  on  an  individual  uncertified  check,  drawn  on 
another  bank. 

Such  a  mode  of  payment  is  unsafe  and  unbusiness-like. 
Checks  given  in  such  payment  by  men  who  may  have  no  in- 
tention of  fraud,  have  often  proven  worthless.  The  deposit 
against  which  the  check  is  drawn  may  be  made  up  of  checks 


THE  COLLECTION  CLERK.  259 

of  persons  who  have  failed.  A  rule  adopted  by  the  best  banks 
is  not  to  accept  uncertified  checks,  drawn  on  other  banks,  in 
payment  of  notes,  drafts,  etc. 

This  is  by  far  the  best  plan  for  all  concerned.  If  a  teller  or 
clerk  will  make  it  a  rule  to  take  such  checks  only  when  prop- 
erly certified,  he  will  secure  the  safety  for  his  bank  v/hich  is" 
necessary  to  successful  banking.  This  way,  of  course,  offends 
some  customers,  but  not  the  better  class  of  business  men.  To 
be  sure  the  intervention  of  a  little  discretion  in  making  excep- 
tions to  this  rule  will  be  of  service.  But  the  exceptions  should  be 
left  for  the  manager,  whose  superior  judgment  and  experience 
enables  him  to  take  the  entire  risk  as  a  matter  of  wisdom  and 
policy,  and  thus  relieve  the  subordinate  officers  of  responsibility. 
This  rule  is  a  necessity, — so  are  the  exceptions;  and  where 
the  managing  officer  decides  the  exceptions,  the  matter  of  tak- 
ing checks  for  collections  becomes  one  of  comparative  safety. 

§  460.  Collections  Payable  at  a  Bank.  The  maker  often 
makes  his  note  payable  at  a  particular  bank,  though  this  does 
not  necessarily  mean  that  he  intends  to  pay  it  there.  He 
simply  gives  an  address  where  the  note  may  be  presented  for 
payment,  providing  it  is  not  otherwise  taken  care  of ;  and  he 
is  assured  that  should  he  neglect  it,  the  note  will  be  presented 
there  for  payment  before  it  can  be  considered  dishonored. 

On  the  other  hand,  we  have  already  seen  that  banks  may 
take  the  dealer's  deposits  to  pay  his  discounted  note,  if  at 
maturity  it  remains  unpaid.  A  bank  has  an  indisputable 
right  to  do  this,  as  it  would,  otherwise,  be  in  danger  of  losing 
the  indorsers  through  its  neglect  to  secure  payment.  But 
with  regard  to  paper  left  with  or  sent  to  a  bank  for  collection 
a  different  rule  prevails  in  this  country,  though  in  England 
banks  charge  up  collections  the  same  as  discounts,  and  the 
custom  is  followed  in  some  localities  in  the  United  States. 
For  instance,  in  New  York  the  English  idea  of  treating  such 
notes  the  same  as  checks  is  followed,  though  the  courts  of  this 
country  have  rendered  several  decisions  to  the  contrary. 


260  THE  BUSINESS  OF  BANKING. 

The  more  prevalent  idea  among  American  bankers  is,  that 
when  a  bank  pays  collections  made  payable  at  its  counter,  it 
performs  a  gratuitous  service  and  assumes  an  unwarrantable 
risk.  A  promisor  may  wish,  for  some  good  reason,  to  dishonor 
his  maturing  paper,  and  when  a  bank  pays  paper  without  spe- 
cific instructions  regarding  the  paper,  it  runs  the  risk  of  pay- 
ing forged  or  otherwise  fraudulent  paper  against  which  the 
payer  may  have  a  proper  defense. 

The  method  adopted  among  some  bankers  in  the  east  is  to 
be  highly  commended  to  bankers  generally,  as  being  not  only 
secure  and  justifiable,  but  producing  the  greatest  satisfaction 
to  those  interested.  It  is  to  require  of  persons  who  make  their 
paper  payable  at  the  bank  to  furnish  the  bank  with  a  list  of 
maturing  paper,  giving  dates,  amounts,  and  explicit  instruc- 
tions regarding  payment,  and  whether  the  paper  is  to  be  paid 
out  of  the  promisor's  regular  balances. 

§461.  Charging  up  through  the  Clearings.  Notes  held 
by  a  bank,  and  payable  at  another  bank  in  the  same  city,  are 
presented  by  a  messenger  for  payment  on  the  day  of  maturity. 
In  Clearing-house  cities  there  is  quite  a  general  custom  of 
charging  such  paper  up  through  the  clearings  on  the  day  of 
maturity  to  the  banks  where  they  are  payable.  If,  however, 
a  bank  happens  to  know  that  the  paper  will  not  be  paid  at 
the  bank  where  it  is  made  payable — that  the  payer  has  not 
provided  the  means  of  discharging  the  paper,  or  if  he  intends 
to  call  at  the  bank  holding  the  paper  and  make  payment,  it 
would  not  thus  charge  the  paper  up. 

Another  point  to  be  noticed  in  this  connection  is  that  the 
paper  is  not  to  be  considered  paid  when  it  is  charged  up 
through  the  clearings.  And  the  notes  may  be  returned  within 
a  reasonable  time,  though  the  time  for  returning  checks  might 
be  much  shorter.  Notes  are  not  considered  the  same  as 
checks,  and  what  would  be  a  reasonable  time  for  returning  a 
note  might  be  an  unreasonable  time  for  returning  a  check. 

§  462.     Collection  of  Checks.     Every  bank  of  deposit  re- 


THE  COLLECTON  CLERK.  261 

ceives  daily  a  large  number  of  checks  drawn  on  other  banks. 
The  duties  of  a  bank  become  somewhat  complicated  when 
such  is  the  nature  of  the  collections  to  be  made.  Credit  is  at 
once  given  to  the  depositor  on  his  pass  book,  but  should  the 
bank  fail  to  make  the  collection  the  credit  may  subsequently 
be  cancelled. 

§  463.  Crossing  Checks.  In  England  and  Canada  there 
is  a  habit  of  "crossing"  checks,  which  makes  them  payable 
only  through  a  bank.  I  am  indebted  to  Mr.  C.  D.  Freeman, 
Bank  of  Nova  Scotia,  St.  John,  N.  B.,  for  the  following 
English  act  and  comment  on  "  crossing"  checks  :  "'When  a 
cheque  bears  across  the  face  an  addition  of  the  words,  '  and 
Company,'  or  any  abbreviation  thereof  between  two  parallel 
transverse  lines,  or  of  two  parallel  transverse  lines  simply, 
with  or  without  the  words,  ' not  negotiable,'  that  addition 
shall  be  deemed  a  crossing  generally.  When  a  cheque  bears 
across  its  face  an  addition  of  the  name  of  a  banker,  either 
with  or  without  the  words,  'not  negotiable,'  that  addition 
shall  be  deemed  a  crossing  specially  and  to  be  crossed  to  that 
bank.  When  a  cheque  is  crossed  specially,  the  banker  to 
whom  it  is  crossed  specially  may  again  cross  it  specially  to 
another  banker  as  his  agent  for  collection.  If  a  cheque  is 
crossed  generally,  the  banker  on  whom  it  is  drawn  shall  not 
pay  it  otherwise  than  to  a  bank  ;  if  crossed  specially  then  to 
the  banker  specially  named  or  his  agent.  A  banker  paying  a 
crossed  cheque  otherwise  than  authorized  by  this  act,  shall  be 
liable  to  the  true  owner  for  any  loss  he  may  sustain  through 
his  action.' 

"  '  Under  this  act  any  indorser  or  holder  may  cross  a  cheque, 
and  if  already  crossed  generally,  may  cross  it  specially  and  it 
would  operate  the  same  as  if  crossed  by  the  drawer.' 

"The  Canadian  act  passed  in  1891  provides  that  a  crossed 
cheque  may  be  opened  by  the  drawer  writing  between  the 
transverse  lines,  'pay  cash,'  and  initialing  the  same.  The 


262  THE  BUSINESS  OF  BANKING. 

result  of  this  act  in  addition  to  preventing  forgery,  discourages 
the  paying  of  cash  across  the  counter  on  crossed  cheques  and 
encourages  persons  to  keep  a  bank  account,  depositing  all 
cheques  to  their  credit." 

§  464.  Collections  for  Strangers.  Many  banks  receive 
requests,  almost  daily,  for  collections  from  entire  strangers. 
These  are  usually  for  small  amounts  and  come  mostly  from 
towns  and  cities  where  there  are  home  banks  through  which 
they  could  be  collected  in  the  usual  way.  These  "stray"  or 
"tramp"  collections  consist  of  checks,  drafts  and  notes,  and 
generally  the  owner  asks  for  an  immediate  remittance.  The 
bank  has  never  corresponded  with,  and  knows  absolutely 
nothing  of  the  owner's  character  or  responsibility.  And  to 
say  the  least,  the  bank  does  a  dangerous  business  whenever 
it  has  anything  to  do  with  such  paper.  If  a  remittance  is 
made  it  is  usually  in  checks  or  drafts  on  some  central  bank, 
and  these  for  small  amounts,  falling  into  the  hands  of  strangers, 
are  attended  with  great  risk.  This  kind  of  business  is  some- 
times done  to  get  first-class  checks  that  the  amounts  may  be 
raised  to  a  larger  sum. 

There  is  another  danger  in  handling  these  "tramp"  collec- 
tions that  may  be  mentioned  in  this  connection.  It  is  the 
risk  of  handling  lost  or  stolen  paper.  A  bank  may  collect  and 
remit  for  a  draft  or  a  check  to  a  stranger,  and  afterward,  when 
the  paper  gets  around  to  the  drawer,  be  advised  that  the 
paper  had  been  lost  or  stolen  and  one  of  the  indorsements 
forged,  and  that  the  bank  must  make  good  the  amount.  If 
the  sender  is  the  forger  the  collecting  bank  usually  has  no  one 
to  look  to  for  a  return  of  its  remittance;  and  if  the  sender  be 
innocent,  having  obtained  the  paper  legally,  he  is  not  always 
able  or  willing  to  return  the  amount  to  the  bank. 

Many  banks  refuse  to  handle  "tramp"  collections,  and  this  is 
the  only  safe  method  for  a  bank  to  adopt.  The  paper  should 
be  returned  to  the  sender. 

§  465.     Facilities  in  Collections.      The  establishment  of 


THE  COLLECTION  CLERK.  263 

the  national  banking  system,  and  the  increasing  facilities 
for  travel  and  correspondence,  has  added  greatly  to  the  ease 
of  making  collections.  And  with  the  greater  facilities  for 
doing  the  business  has  come  an  enormous  increase  in  the 
number  and  variety  of  paper  which  is  handled  and  collected 
through  banks.  The  country  merchant  is  not  in  style  now 
unless  he  sends  his  individual  check  drawn  on  his  village 
bank  to  pay  his  New  York  or  Chicago  bills.  The  "national" 
part  of  the  drawee  bank's  title  has  produced  that  degree  of 
confidence  in  even  the  smaller  national  banks,  that  such 
checks  are  easily  collected. 

Another  thing  that  has  helped  to  produce  greater  facility 
in  the  collection  department  of  the  modern  bank  is  the 
increased  number  of  banks  and  the  fact  that  they  are  estab- 
lished in  almost  every  small  town.  And  in  towns  too  small 
for  a  bank  or  a  lawyer,  the  express  companies  are  there  and 
these  render  great  service  to  banks  in  the  way  of  collections. 
In  fact  some  banks  do  their  collection  business  with  the  ex- 
press companies,  even  in  towns  where  there  are  banks,  claim- 
ing that  the  express  is  often  the  quickest  and  cheapest.  One 
thing  is  sure,  the  express  system  is  managed  with  great  skill 
and  a  promptness  and  safety  that  calls  for  admiration,  and 
makes  it  a  desirable  collecting  agency. 

Short  methods  and  improved  records  and  forms  have  very 
materially  lessened  the  work  in  attending  to  the  details  of  the 
collection  department.  The  pen  no  longer  writes  out  all  the 
forms,  and  indorsements.  This  work  is  accomplished  by 
means  of  the  rubber  stamp,  and  is  done  by  the  messenger  and 
the  junior  clerk,  instead  of  the  officers  of  the  correspondence 
and  collection  departments  of  the  bank.  Many  of  these  in- 
dorsement stamps  contain  the  name  of  the  cashier,  so  that 
nothing  is  to  be  written  with  the  pen. 

§  466.  The  Bank's  Responsibility.  A  bank  is  always 
responsible  for  paper  left  with  it  for  collection.  And  if  the 
paper  is  payable  at  another  bank  and  is  sent  there  for  collec- 
tion, the  sending  bank  is  responsible  for  its  collecting  agents 
acts.  If  a  collecting  bank  fails  with  the  proceeds  of  collec- 


264  THE  BUSINESS  OF  BANKING. 

tlons  still  in  its  possession,  awaiting  remittance,  the  amount  is 
not  to  be  considered  as  fiduciary  and  is  not  therefore  returnable 
to  the  owner.  The  courts  hold  that  these  special  balances  are 
the  property  of  the  suspended  bank  the  same  as  other  balances. 

Banks,  like  railroads  and  many  other  corporations  and 
firms,  try  to  limit  their  liabilities  by  giving  notice  that  they 
will  not  be  responsible  for  this,  that  and  the  other  for  which 
the  law  says  they  are  responsible.  These  claims  amount  to 
very  little,  for  a  man  cannot  shield  himself  from  responsibility 
by  mere  publication.  The  matter  must  be  controlled  accord- 
ing to  law.  In  the  matter  of  collections  which  we  have  under 
consideration  the  courts  hold  that  the  first  collecting  bank  is 
responsible  directly  to  the  owner  of  the  paper.  Even  should 
the  paper  be  lost  or  stolen  during  transmission  from  one  bank 
to  another  the  first  collecting  bank  would  be  liable  to  the 
owner. 

§  467.  Collection  Letters.  After  the  paper,  to  be  sent  away 
for  collection,  has  been  properly  indorsed,  a  letter  to  accom- 
pany it  is  written  and  sent  by  mail  to  the  collecting  bank. 
These  letters  transmitting  collections  are  generally  to  the 
point.  The  following  is  a  form  much  used  : 

LEE  BANKING  ASSOCIATION. 

DES  MOINES,  IA.,  July  p,   1892. 
C.  L.  Cory,  Esq.,  Cashier, 

Denver,  Colo. 
DEAR  SIR, — We  inclose  for  collection  and  remittance, 

Wells  &  A  ndrews  _ A  ug.  jo $718  and  exchange. 

L.  J.  Auston  on  Cozier  &  Co.,  sight $1900. 

Yours  truly, 

C.  A.  Duryea,  Cashier. 

These  letters  may,  of  course,  vary  in  size  and  form,  but 
this  is  the  usual  style.  All  collection  letters  and  all  other  let- 


THE  COLLECTION  CLERK.  265 

ters  sent  out  by  a  bank,  or  any  business  house,  should  be 
copied  before  going  to  the  mails. 

§  468.  Rates  of  Collection.  The  matter  of  compensation 
for  collections  is  becoming  a  serious  question  with  the  better 
class  of  banks.  With  the  establishment  of  so  many  banks 
competition  has  become  so  great  in  some  localities  that  banks 
are  offering  to  make  collections  for  their  regular  custom- 
ers without  charge.  But  why  banks,  any  more  than  any  one 
else,  should  do  business  for  nothing  does  not  appear. 

The  Arkansas  Bankers'  Convention,  held  at  Little  Rock,  in 
May,  1892,  adopted  a  set  of  resolutions  that  is  intended  to 
remedy  this  evil.  Here  it  is  : 

"Resolved,  That  a  uniform  rate  of  exchange  charges  between 
Little  Rock  banks  and  other  banks  in  this  state  shall  be  as 
follows: 

"On  all  items  originating  in  Little  Rock,  $1.50  per  thousand, 
and  no  item  less  than  fifteen  cents;  on  all  foreign  items,  $2 
per  thousand,  and  no  item  less  than  fifteen  cents;  on  all 
depositors'  checks  or  drafts,  individual  or  otherwise,  drawn  on 
banks  in  this  state,  $2.50  per  thousand,  and  no  item  less  than 
twenty  cents,  and  on  all  other  items  from  whatever  source, 
one  quarter  of  one  per  cent.,  no  item  less  than  fifteen  cents. 
That  in  listing  items  for  charges,  the  aggregate  amount  of 
checks  contained  in  each  letter  of  transmittal  on  the  same 
bank  to  be  taken  in  the  aggregate,  and  not  on  each  item  sep- 
arately. 

"Resolved,  That  it  is  the  sense  of  this  convention  that  mem- 
bers hereof  should  send  their  collections  and  business  to  such 
banks  only  as  are  members  of  this  association. 

"Resolved,  That  we  deprecate  the  habit  of  banks  in  sending 
their  collections  by  such  circuitous  routes  to  reach  their  des- 
tination, and  earnestly  request  that  items  be  sent  direct  to  the 
place  of  payment." 

The  committee  further  reported  as  follows: 

"Your  committee  respectfully  calls  the  attention  of  the 
assembled  bankers  to  the  growing  practice  of  bank  depositors 
in  sending  their  checks  on  their  local  banks  to  pay  their  bills 


266  THE  BUSINESS  OF  BANKING. 

in  markets  where  they  purchase  goods,  thus  depriving  the  bank 
of  its  legitimate  exchange  and  reasonable  profit,  as  being  a 
practice  that  is  dangerous  and  unbusiness-like,  contrary  to 
the  true  principles  and  theories  of  banking,  and  that  we, 
bankers  of  Arkansas,  in  convention  assembled,  do  hereby 
deprecate  this  vicious  practice,  and  call  upon  each  member 
thereof  to  use  every  reasonable  and  honorable  effort  to  cause 
a  discontinuance  of  the  same." 


CHAPTER  XII. 


THE  MESSENGER  AND  THE  PORTER. 


§469- 
470. 
471- 


The  messenger. 
The  messenger's  duties. 
Presenting    paper   for   accept- 
ance. 


§472.     Small  drafts. 
473-     "Where  is  that  messenger?1 
474.     The  porter. 


§  469.  The  Messenger.  Nearly  all  banks,  whether  large 
or  small,  and  whether  they  have  to  double  up  in  other  depart- 
ments or  not,  have  a  messenger  or  runner.  Many  of  the 
larger  banks  have  as  many  as  ten  or  a  dozen  messengers. 

To  be  successful  in  his  position  a  messenger  should  be 
alert,  quick,  accurate  and  honest.  The  position  is  usually 
considered  as  being  the  preparation  for  the  banker's  profession, 
and  many  bank  clerks,  cashiers  and  bank  presidents  have  be- 
gun as  runners.  The  runners  in  most  banks  are  bright  young- 
men  who  are  seeking  promotion  to  higher  positions  and  are 
willing  to  start  at  the  beginning  and  employ  their  talents  and 
abilities  to  secure  the  coveted  promotion.  This  can  be  gained 
only  through  the  exercise  of  care  and  accuracy  in  their  work, 
and  combining  promptness,  earnestness  and  courtesy  in  dis- 
charging the  various  duties.  If  the  messenger  does  this  he 
is  sure  of  promotion,  otherwise  he  will  always  remain  in  the 
first  position  of  the  bank. 

§470.  The  Messenger's  Duties.  Presenting  drafts,  de- 
livering notices,  collecting  paper  of  various  kinds  and  doing  the 
post-office  business  of  the  bank,  are  the  usual  duties  which 
fall  to  the  lot  of  the  ordinary  bank  messenger.  He  takes 
notes  and  drafts  around  the  city  and  collects  them.  The  in- 


268  THE  BUSINESS  OF  BANKING. 

structions  are  very  simple  and  are  easily  followed.  In  pre- 
senting drafts  for  payment  or  acceptance,  it  is  very  desirable 
that  the  drawee  be  found  personally  and  that  the  paper  be 
presented  to  the  very  person  on  whom  it  is  drawn.  In  case 
the  drawee  refuses  to  pay  or  accept,  it  is  a  good  plan  to  have 
him  note  down  the  reasons  which  lead  him  to  dishonor  the 
paper.  Some  sort  of  an  answer  in  the  drawee's  hand  writing 
will  be  self-explanatory  and  often  prevent  misunderstandings, 
and  misrepresentations.  Such  answers  are  likewise  very  val- 
uable and  convenient  for  return  to  depositors  and  others  who 
have  sent  paper  for  collection. 

§  471.  Presenting  Paper  for  Acceptance.  It  has  become 
customary,  and  is  sanctioned  by  statutory  enactment  of  most 
of  the  states,  to  allow  the  drawee  twenty-four  hours  in  which 
to  examine  his  accounts  and  decide  whether  he  will  accept 
the  paper  presented  for  that  purpose.  If  the  draft  is  drawn 
on  time  payable  from  sight,  and  is  accepted  after  the  expira- 
tion of  the  twenty-four  hours,  the  acceptance  is  dated  on  the 
day  it  was  first  seen.  If  paper  is  drawn  payable  on  demand 
or  presentation,  a  settlement  must  be  made  before  the  close 
of  banking  hours  on  the  day  of  presentation. 

If  the  drawee  is  absent  the  presentation  of  the  draft  at  his 
place  of  business  and  the  leaving  of  the  draft  or  notice  of  it, 
is,  of  course,  all  that  is  usually  required;  but  a  faithful  mes- 
senger knows  that  much  faultfinding,  and  often  losses,  will  be 
averted  if  he  can  see  the  drawee  in  person  and  get  a  direct 
answer  from  him,  and  this  should  be  done  where  at  all 
possible. 

When,  by  courtesy,  a  draft  and  notice  are  left  with  a 
drawee,  he  should  not  fail  to  make  the  proper  return  to  the  bank 
within  the  allotted  time.  If  he  fails  to  do  this  the  messenger 
will  act  wisely  if  he  leaves  no  more  drafts  with  such  person. 
§  472.  Small  Drafts.  The  great  key  of  success  in  busi- 
ness life  is  the  proper  regard  for  the  details — the  little  things. 
And  a  bank's  messenger  should  give  as  much  consideration, 


THE  MESSENGER  AND  THE  PORTER.  269 

and  use  as  much  care,  in  handling  drafts  of  small  amounts  as 
he  would  were  they  drawn  for  large  amounts.  He  ought  to 
be  as  particular  and  as  courteous  with  the  smallest  customer 
whose  business  may  seem  insignificant,  as  he  is  to  the  heaviest 
customers.  Patten  cites  a  case  which  illustrates  how 
neglect  of  a  small  draft  caused  the  drawee  a  considerable  loss. 
The  draft  was  for  $25  and  the  messenger  did  not  make  any 
'reasonable  search  for  the  drawee,  but  protested  it  at  the  close 
of  banking  hours.  Not  long  afterward  the  drawee,  a  man  of 
large  interests,  so  it  turned  out,  called  at  the  bank  for  some 
explanation  of  the  protest.  He  said  he  knew  nothing  of  the 
demand  on  him  until  he  heard  of  the  protest,  and  that  the 
messenger  could  not  have  searched  for  him  properly,  or  made 
any  due  presentation.  He  also  advised  the  bank  that  the 
messenger's  negligence  had  cost  him  several  hundred  dollars, 
the  draft  being  a  bill  for  a  portion  of  taxes  on  western  lands, 
the  non-payment  of  which  had  led  to  their  sale  for  taxes  and 
the  loss  to  him  as  specified. 

Of  course  business  men  ought  to  be  on  hand  during  legiti- 
mate business  hours  to  attend  to  the  paper  which  they  have 
been  advised  is  to  be  presented  to  them.  This  does  not, 
however,  relieve  the  messenger  from  a  faithful  discharge  of 
his  duty.  One  man  is  not  excused  from  the  proper  discharge 
of  his  duty  simply  because  another  happens  to  be  negligent. 

§  473.  "  Where  is  That  Messenger  ?"  This  is  a  standing 
question  with  American  bankers.  As  a  rule,  messengers  leave 
no  record  of  their  proposed  route,  and  nothing  is  known  of 
their  movements  until  they  return. 

In  England  a  messenger  is  called  an  "out  teller,"  and  while 
his  duties  are  about  the  same  as  our  own  messenger,  he  em- 
ploys a  somewhat  different  method.  Before  he  starts  out  on 
his  "walk"  he  goes  to  the  "walk  book"  and  makes  a  record 
of  his  proposed  route,  of  the  collecting,  notifying  and  present- 
ing he  is  to  do,  and  thus  enables  the  bank  to  determine  where 
he  may  be  found  at  any  time. 


270  THE  BUSINESS  OF  BANKING. 

§  474.  The  Porter.  The  porter  is  the  bank's  janitor.  He 
appears  when  the  watchman  leaves  in  the  morning,  sweeps 
out  and  opens  up  the  bank  at  the  proper  time,  runs  errands, 
attends  to  the  bank's  expressage,  and  makes  himself  generally 
useful.  He  helps  the  clerks  and  tellers  get  the  books  and 
cash  out  of  the  vault,  and  helps  put  them  back  at  night.  After 
the  clerks  are  gone  he  locks  up  and  remains  until  the  watch- 
man appears.  The  bank  is  never  left  alone.  After  the  clerks 
go,  the  porter  or  watchman  is  always  present. 


CHAPTER  XIII. 

THE  BOOKKEEPER. 


§475.  General  view. 

476.  Ready  to  make  a  statement. 

477.  The  bookkeeper  and  his  assist- 

ants. 

478.  Eternal  vigilance. 


5479.  Mistakes  in  bank  records. 

480.  Forms  of  books. 
480^. Books  used. 

481.  Care    of    paid     and    cancelled 

checks. 


§  475.  We  explain  the  position  of  bookkeeper  last  of  all 
the  clerks,  not  because  he  is  least  important,  but  because  the 
other  clerks  must  do  their  work  before  the  bookkeeper  can 
do  his. 

In  this  department  we  find  new  and  constantly  changing 
methods.  A  bank  bookkeeper  who  never  has  any  new  ideas 
and  who  does  not  make  any  progress  in  the  manipulation  of 
the  accounts  of  the  bank,  must  be  a  failure  indeed.  The  sys- 
tem of  accounts  used  will,  of  course,  vary  with  the  location  arid 
size  of  the  bank.  A  country  bank,  in  which  one  man  acts  as 
cashier,  paying  and  receiving  tellers,  a  dozen  clerks,  book- 
keeper and  janitor,  would  not,  and  could  not,  use  the  same 
system  of  books  as  a  bank  employing  a  large  force  of  tellers, 
clerks  and  assistants.  A  bookkeeper  should  have  sufficient 
knowledge  of  his  subject,  and  enough  originality  and  indepen- 
dent thought  to  vary  the  system  of  accounts  to  fit  his  partic- 
ular bank. 

As  already  stated  the  general  bookkeeper  stands  an  equal 
chance  with  the  paying  teller  in  the  line  of  regular  promotion. 
The  bookkeeper  is  expected  to  furnish  most  of  the  informa- 
tion regarding  the  bank's  condition.  The  information,  fur- 


272  THE   BUSINESS  OF   BANKING. 

nished  by  him  governs,  to  a  great  extent,  the  acts  of  the  tellers 
and  manager  of  the  association.  A  bank  bookkeeper  should 
be  wide  awake,  keen,  quick,  but  above  everything  he  should 
be  accurate.  Nothing  short  of  mathematical  accuracy— 
almost  clock-work  itself — will  accomplish  the  desired  result 
in  the  manipulation  of  the  books  of  a  bank. 

§  476.  Ready  to  Make  a  Statement.  It  makes  no  differ- 
ence what  system  of  accounts  is  used,  the  books  should  be 
kept  each  day  upon  the  presumption  that  the  bank  is  to  pass 
into  the  hands  of  a  receiver  before  business  opens  the  next 
day,  and  that  the  directors  are  to  require  a  complete  financial 
statement  of  the  bank's  affairs  within  a  few  hours  of  the  fail- 
ure. If  no  crookedness  has  been  practiced,  there  is  no  tenable 
reason  why  a  complete  and  comprehensive  statement  should 
not  be  presented  within  a  few  hours  at  any  time.  It  is  at  times 
when  a  statement  is  required,  and  when  an  association  fails, 
that  accuracy,  method  and  promptness  is  appreciated.  When 
it  takes  days,  and,  as  it  frequently  happens,  even  weeks,  to 
make  a  statement  of  the  affairs  of  a  failed  bank,  it  is  a  natural 
inference  that  there  is  something  radically  wrong  in  the  sys- 
tem of  accounts  in  use,  or  in  the  ability  or  honesty  of  the 
bookkeeper. 

If  the  system  of  accounts  is  so  imperfect  as  to  cause  such 
unreasonable  delay  it  should  be  discarded,  and  a  better  method 
introduced  ;  if  the  fault  lies  in  the  incompetency  or  dishonesty 
of  the  accountant,  he  should  be  discharged. 

Even  in  cases  of  defalcations  and  general  crookedness,  there 
is  no  reason  why  a  statement  should  not  be  obtained  within 
twenty-four  hours,  provided  a  proper  system  of  bookkeeping 
is  in  use.  Simplicity  in  method  and  sufficient  clerical  force  is 
necessary  to  obviate  the  difficulties  described. 

§  477.  The  Bookkeeper  and  his  Assistants.  In  the  large 
banks  the  bookkeeper  has  many  assistants.  It  is  poor  economy 
for  a  bank  to  require  one  clerk  to  do  the  work  of  two;  and  much 
worse  economy  to  expect  one  bookkeeper  to  do  the  work  of 


THE  BOOKKEEPER.  273 

two.  It  is  as  bad,  however,  to  have  too  many  as  too  few. 
The  number  to  be  employed  depends  a  great  deal  on  the  effi- 
ciency and  qualification  of  each.  Before  a  bank  employs  or 
promotes  a  clerk  or  bookkeeper,  it  should  satisfy  itself  that  he 
is  peculiarly  qualified  for  the  work  he  is  to  perform.  Then  the 
force  of  clerks  should  be  large  enough  to  keep  the  work  up  with- 
out neglecting  any  part.  A  bookkeeper  cannot  afford  to  take 
chances  in  doing  his  duty  when  he  knows  that  important  parts 
are  not  being  cared  for.  He  should  demand  the  proper  amount 
of  help,  and  if  it  is  refused  him  he  would  act  wisely  to  resign. 
He  cannot  afford  to  take  the  responsibilities  sure  to  arise  from 
an  insufficient  force.  The  force  should  be  large  enough  to 
keep  all  very  busy  and  yet  get  the  work  all  done  each  day. 

While  the  business  of  banks  is  constantly  increasing,  so 
the  methods  of  keeping  the  accounts  are  constantly  being 
changed,  improved,  and  abridged ;  so  that  the  increased  busi- 
ness does  not  demand  a  proportional  increase  in  the  number 
of  assistants  to  the  bookkeeper,  though  the  number  of  regular 
clerks  and  tellers  may  have  to  be  increased.  There  is  little 
danger,  however,  that  banks  will  employ  too  many  assistants; 
the  trouble  is  generally  the  other  way. 

§  478.  Eternal  Vigilance.  A  banker  is  presumed,  above 
all  classes  of  business  men,  to  be  accurate  and  business-like 
in  all  his  dealings.  He  is  expected  to  be  a  model  business 
man  in  every  way.  He  must  be  prompt,  decisive  and  well 
informed  concerning  his  own  business. 

So  a  bank  bookkeeper  is  supposed  to  be  well  skilled  in  the 
manipulation  of  accounts.  It  requires  an  unusual  degree  of 
accuracy  to  handle  properly  and  correctly  the  depositors' 
accounts.  These  require  the  closest  attention  to  prevent 
errors.  And  eternal  vigilance  is  the  only  safety.  It  is  the 
prime  virtue  in  a  bank  bookkeeper. 

If  an  error  should  occur  in  a  depositor's  account,  he  is 
almost  certain  to  find  it  and  report  to  the  bank.  To  say  the 
least,  this  is  humiliating  to  an  accountant.  It  also  causes  the 


274  THE  BUSINESS  OF  BANKING. 

dealer  to  look  thereafter  with  suspicion  on  his  bank  account. 
He  might  make  many  errors  himself,  yet  he  expects  others  to 
be  accurate,  and  if  he  finds  one  error  in  his  account  with  the 
bank,  no  matter  how  small,  he  will  suspect  other  and  larger 
blunders.  These  things  exert  a  great  influence  on  a  bank 
bookkeeper,  and  almost  compel  him  to  be  accurate. 

§  479.  Mistakes  in  Bank  Records.  Errors  are  made  by 
charging  unreal  payments,  or  excessive  payments;  making 
wrong  credits;  inaccurate  calculation  in  figuring  interest,  dis- 
count and  balances  of  accounts;  and  mistakes  in  carrying 
amounts  from  one  book  to  another. 

A  bank  pass  book  returned  with  the  vouchers,  is  only  prima 
facie  evidence  of  the  correctness  of  the  account,  and  parol 
evidence  may  be  admitted  to  explain  it.  A  pass  book  is  not 
a  contract,  it  only  shows  the  state  of  the  funds. 

If  the  pass  book  be  written  up,  and  handed,  with  the 
vouchers,  to  the  dealer,  it  is  equivalent  to  a  statement  of  the 
account.  And  a  subsequent  retention  of  the  same  by  the 
dealer,  for  some  months,  or  less  time,  without  objection,  and 
a  final  withdrawal  of  the  exact  amount  shown  by  the  book,  is 
clear  evidence  of  a  settled  account,  and  prima  facie  estab- 
lishes the  accuracy  of  the  items. 

Mistakes  are  common.  The  bank  bookkeeper  is,  of  course, 
human  and  liable  to  err,  and  in  handling  the  depositors' 
accounts  he  must  exercise  extraordinary  diligence. 

§  480.  Form  of  Books.  It  is  not  intended,  in  this  work, 
to  present  any  system  of  bank  bookkeeping,  nor  to  fill  up 
several  pages  with  forms  which  are  generally  of  no  value  to 
either  the  bookkeeper  or  the  student.  Each  bank  has  a  sys- 
tem of  accounts  peculiar  to  its  own  business,  and  any 
changes  which  might  be  of  benefit  to  the  accountant,  and 
which  he  cannot  devise  for  himself,  may  be  obtained  from 
any  of  the  many  books  treating  of  bank  bookkeeping.  And 
the  student  who  wishes  to  prepare  for  this  work,  will  gener- 
ally find  the  necessary  forms  of  books  in  the  business  school 


THE  BOOKKEEI-E::.  275 

where  he  obtains  his  business  education,  and  will  have  them 
explained  to  him  more  comprehensively  than  we  have  space 
to  do  in  this  treatise  on  the  Business  of  Banking. 

§  480^.  Books  Used.  The  number,  size  and  kind  of 
books  employed  vary  according  to  the  kind  of  bank  and  its 
volume  of  business.  In  a  large  national  bank  we  find  a  gen- 
eral ledger,  from  two  to  six  dealers'  or  depositors'  ledgers,  a 
debit  journal,  a  credit  journal,  a  discount  register,  a  collection 
register,  a  domestic  tickler,  a  foreign  tickler,  a  draft  register,  a 
remittance  register,  a  daily  statement  book,  a  stock  ledger,  a 
subscription  book,  a  paying  teller's  cash  book,  a  receiving  teller's 
cash  book,  an  offering  book,  a  dividend  book,  a  paying  teller's 
proof  journal,  a  receiving  teller's  proof  journal,  an  individual's 
liabilities  book,  a  protest  book,  stock  certificate  books,  letter 
books,  signature  books^  trial  balance  books,  dealers'  balance 
books,  pass  books,  draft  books,  indexes,  etc. 

In  a  smaller  bank  there  need  be  but  one  dealers'  ledger, 
one  journal  (the  debit  and  credit  journals  being  the  right  and 
left  pages  of  the  regular  journal),  and  one  tickler.  In  still 
smaller  banks  only  one  ledger  for  general  and  depositors'  ac- 
counts need  be  kept,  and  the  number  of  other  books  greatly 
reduced. 

Regarding  size,  the  large  banks  necessarily  have  large, 
heavy  and  substantially  made  books,  while  the  books  are 
smaller  and  less  costly  in  small  banks. 

§  481.  Care  of  Paid  Checks.  The  bookkeeper  takes 
charge  of  all  paid  and  charged  checks,  and  keeps  them  so 
long  as  they  are  retained  by  the  bank.  He  should  assort 
them  and  keep  them  in  such  condition  that  they  may  be  re- 
ferred to  at  any  time.  That  this  be  done  properly  is  very 
important  and  it  requires  great  care  that  trouble  may  not 
arise  from  mistakes  in  assorting.  This  work  should  be  done  by 
the  bookkeeper,  or  under  his  personal  supervision,  at  least. 

Most  banks  have  some  method  for  this"  work,  and  we  have 
found  the  following  method  in  use  in  several  Chicago  banks. 


276 


THE  BUSINESS  OF  BANKING. 


Pieces  of  card  board  are  cut  a  little  longer  than  the  checks, 
and  arranged  edgewise  in  a  drawer  or  apartment  where  the 
checks  are  to  be  kept.  The  tops  of  these  cards  are  cut  into 
an  index  and  bear  the  depositors  name — there  being  a  card 
for  each  depositor.  They  are  used  as  dividing  lines  between 
depositors'  checks  in  the  check  drawer.  Here  is  the  shape  of 
one  of  these  cards  : 


H.  H.  LEE. 


The  next  one  to  the  left  would,  of  course,  have  the  wide 
part  nearer  the  center,  so  as  to  avoid  hiding  the  name  in  case 
there  were  but  a  few  checks  between  the  two  cards,  some- 
thing like  this: 


JOHN  O'BRIEN. 


The  next  one  has  the  wide  part  still  further  to  the  left, 
until  the  left  end  is  reached,  when  they  again  begin  at  the 
right  end.  In  this  way  the  sorter  can  see  instantly  where 
any  check  belongs,  and  checks  may  be  referred  to  without 
needless  delay. 


CHAPTER  XIV. 

THE  CLEARING-HOUSE. 


§490.   How  clearings  are  made. 

1.  The  clerks  arrive. 

2.  Called  to  order. 

3.  Making  the  clearings. 

4.  The  Clearing-house  proof. 

5.  Errors. 

How  the  balances  are  paid. 
Transfers. 
Fines. 

Reclamations  and  errors  in  the 
exchanges. 

495.  Returning  bad  checks. 

496.  Country  clearings. 


491. 
492. 
493- 
494- 


§482.  Definition. 

483.  Early  methods. 

484.  The  origin  of  the  Clearing-house. 

485.  The  modern  Clearing-house. 

486.  Utility. 

487.  How   to    organize    a    Clearing- 

house. 

488.  Arrangement  of  desks. 

489.  How    banks    prepare    the    ex- 

changes. 

1.  Classification. 

2.  Exchange  slips. 

3.  Settling  clerk's  statement. 

4.  Debtor  and  creditor  banks. 

5.  Check  tickets. 

6.  Credit  tickets. 

7.  Settling  clerk's  receipt. 


§  482.  Definition.  The  Clearing-house  system  is  a  device 
by  which  all  its  members  are  joined,  so  to  speak,  in  one  im- 
mense banking  association,  for  the  purpose  of  transferring 
credits  from  one  bank  to  another  without  the  use  of  money. 

If  a  number  of  depositors  of  the  same  bank  have  transac- 
tions among  themselves,  and  make  their  payments  by  checks, 
the  bank  can  settle  any  number  of  such  transactions  by  trans- 
fers of  credit  from  one  account  to  another  without  handling  a 
single  cent,  so  long  as  the  check  holders  do  not  draw  the 
money.  In  exactly  the  same  manner  the  Clearing-house 
transfers  the  credits  of  one  bank  to  another. 


278  THE  BUSINESS  OF  BANKING. 

§  483.  Early  Methods.  Every  banker  has,  every  morn- 
ing, checks  and  drafts  against  other  banks  of  the  city,  and 
they  have  claims  on  behalf  of  their  customers  against  him. 
Before  the  advent  of  the  Clearing-house  system  these  charges 
were  sent  out  by  clerks  the  first  thing  in  the  morning  for  col- 
lection, and  they  had  to  be  paid  in  money.  After  they  were 
collected  the  several  banks  were  credited.  But  each  bank's 
clerk  had  claims  against  every  other  bank,  and  this  made  it 
necessary  that  every  banker  keep  on  hand  a  large  amount  of 
money  for  the  sole  purpose  of  meeting  these  banking  charges. 
The  retention  of  enough  money  to  meet  these  obligations 
caused  great  loss  in  the  use  of  the  bank's  funds,  and  such  a 
system  at  the  present  time  of  immense  financial  transactions 
would  cause  an  irretrievable  loss. 

§  484.  The  Origin  of  the  Clearing-house.  To  remedy  the 
inconvenience  of  keeping  separate  accounts  with  every  bank 
in  the  city,  an  ingenious  plan  was  conceived  by  the  clerks  of 
some  of  the  banks  at  Naples  in  the  sixteenth  century.  A 
central  chamber  was  instituted,  to  which  each  bank  sent  a 
clerk  who  exchanged,  or  set-off,  the  different  claims  against 
each  other,  and  paid  only  the  difference  in  money.  Bank  A 
brings  to  the  central  chamber  charges  against  Bank  B  amount- 
ing to  $20,000;  Bank  B  has  charges  against  Bank  A  for  $25,- 
ooo.  They  exchange  their  charges,  and  Bank  A  pays  Bank  B 
the  difference,  $5,000,  and  thus  charges  amounting  to  $45,000 
are  paid  with  $5,000  in  money.  The  different  credits  are 
adjusted  among  the  different  banks  as  easily  as  before,  and  an 
enormous  amount  of  money  is  set  free  for  the  purpose  of  cir- 
culation, and  is,  in  fact,  equivalent  to  so  much  increase  in  the 
bank's  working  capital. 

§  485.  The  Modern  Clearing-house.  The  Clearing-house, 
as  we  know  it,  is  really  a  modern  institution,  and,  while  there 
is  nothing  mysterious  or  particularly  intricate  about  this  rapid 
process  of  making  bank  settlements,  yet  there  are  few  persons 
who  understand  it.  This  is  perhaps  due  to  the  fact  that  almost 


THE  CLEARING-HOUSE,  279 

all  the  literature  on  the  subject  has  appeared  during  the  last 
twenty  years. 

The  Clearing-house  proper  was  founded  in  London  in  1775, 
but  statements  of  its  transactions  were  not  published  until 
1X67,  so  that  little  is  known  of  its  early  history.  The  Bank 
of  England  was  not  admitted  as  a  member  until  1864. 

The  New  York  Clearing-house  was  organized  in  1853  ;  the 
Boston  Clearing-house,  in  1856  ;  the  Philadelphia,  Cleveland 
and  Baltimore  Clearing-houses,  in  1858  ;  the  Worcester  Clear- 
ing-house, in  1 86 1  ;  the  Chicago  Clearing-house,  in  1865.  At 
present  there  are  no  less  than  seventy  of  these  institutions 
in  the  United  States.  The  total  clearings  for  the  year  1891 
in  the  United  States  Clearing-houses  amounted  to  the  enor- 
mous and  almost  inconceivable  sum  of  $56,484,000,000. 
In  England  the  clearings  were  $38,000,000,000  ;  in  Germany, 
$2,988,000,000  ;  in  Italy,  $114,857,000. 

§  486.  Utility.  The  rapid  growth  which  the  clearing 
system  has  shown  since  1 860  is  due,  largely,  to  the  use  of  bank 
checks  in  making  payments,  which  has  in  late  years  attained 
an  unprecedented  development.  The  great  majority  of  checks 
coming  to  banks,  are  drawn  on  some  other  bank,  and  these 
must  be  collected  by  the  receiving  bank.  As  business  increases 
in  any  city  each  bank  has  a  larger  number  of  claims  on  other 
banks,  and  these  become  so  numerous  that  they  cannot  well 
be  settled  between  the  several  banks. 

The  utility  of  the  system  is  thus  set  forth  by  G.  D.  Lyman, 
the  first  manager  of  the  New  York  Clearing-house  : 

"First.  The  condensation  of  many  balances  into  one,  and 
the  settlement  of  that  balance  without  a  movement  of  specie. 

4  'Second.  The  avoidance  of  numerous  accounts,  entries  and 
postings. 

• '  Third.  Great  saving  of  time  to  the  porters  and  of  risk 
in  making  exchanges  and  settlements  from  bank  to  bank. 

"Fourth.  Relief  from  a  vast  amount  of  labor  and  annoyance 
to  which  the  great  army  of  cashiers,  tellers  and  bookkeepers 
were  subjected  under  the  old  system. 


280  THE  BUSINESS  OF  BANKING. 

"Fifth.  The  liberation  of  the  associated  banks  from  all 
injurious  dependence  on  each  other. 

"Sixth.  The  absolute  facility  afforded  by  the  books  of  the 
Clearing-house  for  knowing  at  all  times  the  management 
and  standing  of  every  bank  in  the  association." 

§  487.  How  to  Organize  a  Clearing-house.  When  the 
banks  of  a  town  decide  to  form  a  Clearing-house,  they  asso- 
ciate themselves  together,  with  certain  regulations,  as  they 
may  elect,  for  the  purpose  of  settling  daily  the  demands  aris- 
ing among  the  banks.  They  elect  a  president,  a  secretary,  a 
treasurer,  a  manager,  and  a  Clearing-house  committee.  Other 
committees,  such  as  nominating,  admission,  arbitration  and 
conference  committees,  may  be  appointed.  The  Clearing-house 
committee  has  charge  of  the  operations  of  the  Clearing-house 
and  attends  to  all  matters  not  otherwise  specially  provided  for. 
The  manager  is  usually  selected  or  appointed  by  the  Clearing- 
house committee.  This  officer  gives  his  whole  time  to  the 
work  and  is  paid  a  regular  salary,  and  must  give  bonds  for  the 
faithful  performance  of  his  duties.  He  nas,  under  the  direc- 
tion of  the  Clearing-house  committee,  immediate  charge  of  all 
the  work  of  the  association,  and  all  the  clerks,  whether  of  the 
Clearing-house,  or  of  the  banks,  when  at  the  Clearing-house 
for  the  purpose  of  making  settlements,  are  under  his  control. 

In  some  of  the  smaller  towns  there  is  no  regular  place  of 
meeting,  the  different  banks  taking  turns.  If  one  bank  has  a 
large  room  .(directors'  room,  for  example),  the  association  may 
meet  there,  though  this  is  a  matter  for  the  association  to 
determine  for  itself. 

§  488.  Arrangement  of  Desks.  In  Clearing-houses  having 
only  a  few  members  and  meeting  in  banking  rooms,  a  table, 
such  as  is  usually  found  in  a  board  of  directors'  room,  is  used 
for  making  the  clearings.  In  larger  associations  regular  desks 
are  provided.  The  New  York  Clearing-house,  which  owns  its 
own  building,  has  three  parallel  rows  of  desks  ;  on  each  desk 
the  name  of  the  bank  for  which  it  is  designated  is  lettered  on 


THE  CLEARING-HOUSE.  281 

a  silver  plate  in  front,  and  it  also  bears  the  bank's  number. 
The  desks  at  the  Boston  Clearing-house  are  arranged  in  an 
elliptical  form,  all  facing  outward.  At  Chicago  the  desks  are 
in  two  parallel  rows. 

§  489.  How  Banks  Prepare  the  Exchanges.  In  order  to 
give  the  reader  a  more  comprehensive  understanding  of  the 
workings  of  the  system,  we  will  take  him  into  both  the  banks 

EXCHANGE  SLIP. 

ist    TELLER. 

NO.    4. 


From  No.  13 

GLOBE  NATIONAL  BANK. 

August  2,  189.2. 


47  i 

oo 

890130 

I 

000 

oo 

50 

00 

18 

750 

5 

000 

CO 

48 

40 

3 

3 

51 

000 

00 

96 

408 

00 

173 

621 

00 

86  1 

00 

43 

SO 

75 

000 

00 

i 

241 

us 

I 

500 

00 

251 

268 

60 

282  THE  BUSINESS  OF  BANKING. 

and  the  Clearing-house  and  show  him  a  morning  settlement. 
We  will  do  this  by  showing  how  the  banks  prepare  for  the 
clearings,  and  how  the  clearings  are  effected  by  the  associa- 
tion. 

First.  About  the  first  thing  to  do  with  the  exchanges,  after 
they  are  received  by  the  bank,  is  their  classification  according 
to  the  banks  on  which  they  are  drawn.  The  teller  into  whose 
hands  the  exchangeable  paper  comes  usually  has  pigeon  holes, 
one  for  each  bank,  numbered  with  the  Clearing-house  num- 
bers. The  paper  is  assorted  and  placed  in  the  pigeon  holes  of 
the  bank  on  which  it  is  drawn.  Clearing-houses  often  require 
members  to  place  or  stamp  some  mark,  usually  the  name  and 
number  of  the  bank  clearing  it,  upon  all  exchanges,  so  as  to 
indicate  the  channel  through  which  it  has  passed.  This  is 
usually  stamped  on  the  back  of  the  paper. 

Second.  In  preparing  the  exchanges,  which  is  done  the  first 
thing  in  the  morning  after  the  bank  opens  its  doors,  the 
amounts  of  the  items  of  the  demands  against  other  banks  is 
entered  on  an  Exchange  Slip.  See  form  on  page  281. 

The  first  footings  on  the-  slip,  $173,621,  represent  the 
amount  of  exchanges  received  by  the  Globe  National  on  the 
State  National  after  the  clearings  were  made  on  Aug.  i,  and 
are  thus  listed  for  the  clearings  for  the  next  day.  The  addi- 
tional items  received  by  the  next  morning's  mail,  or  otherwise, 
in  time  for  the  clearings,  make  the  total  amount  $251,268.60 
taken  to  the  Clearing-house  by  No.  13,  the  Globe  National, 
against  No.  4,  the  State  National. 

The  Globe  National  has  one  of  these  slips  for  each  bank  in 
the  Clearing-house. 

The  exchanges  on  each  bank  are  pinned  up  with  the  proper 
exchange  slip,  the  footings  of  the  slips  compared  with  the 
entries  on  the  settling  clerk's  statement,  and  the  packages  put 
in  numerical  order  for  delivery  at  the  Clearing-house. 

Third.  After  the  exchange  slips  are  made  out,  the  amounts 
are  transferred  to  the  Settling  Clerk's  statement  shown  here- 


THE  CLSARING-HOUSB. 


283 


with.  The  "first  debt"  column  contains  the  amounts  of 
exchangeable  paper  which  the  bank  holds  and  has  made  up 
before  the  early  morning  receipts,  as  shown  by  the  first  footings 
of  the  exchange  slip.  The  "  total  debits"  column  represents 
the  total  amount  taken  to  the  Clearing-house  by  the  Globe 

NO.  13.        GLOBE  NATIONAL  BANK, 

SETTLING    CLERK'S    STATEMENT. 

August  2,  i&gz. 


NO. 

BANKS. 

FIRST  DEBIT. 

TOTAL  DEBITS 

BANK'S   CR. 

NO. 

I 
2 

3 
4 
5 
6 

8 

9 
10 
ii 

12 
13 
M 
15 

16 

i? 
18 

19 
20 

21 

Merchants'  National  

58,600.00 
I,70O.OO 

58,900.00 
4I,300.OO 
8OO.OO 
251,268.60 
l6.OOO.OO 
500.00 
2O,IO0.50 
187,119.15 
I,  200.0O 

4,600.00 
1,975.80 
22.470.00 
171,755.00 
46.19 

I 
2 

3 

4 

6 

8 
9 

10 

ii 

12 
'3 

M 

15 

16 

i? 

18 

J9 

20 
21 

Columbia  National 

Citizens'  National 

State  National               .... 

173,621.00 
1,110.  OO 
500.00 

17,846.  10 

146,371.00 
1,200.00 

Bank  of  America 

Nat'l  Bank  of  Commerce. 
Des  Moines  National  

59,791.00 
1,875.00 
16,742.00 
114.70 
100,700.00 
87,  100.40 

Central  National 

Union  National 

First  National 

National  Reserve 

4  1  ,  ooo.  oo 
1,962.01 

51,000.00 
6,962.01 

Iowa  National  

Globe  National 

Manufacturers'  National.  . 
National  Commonwealth  . 
Capital  City  National  .... 
Valley  National 

1,241.13 
758.10 

90.00 

1,000.  IO 

200,108.00 

1,244.19 

164.00 
1,199.00 

1,246.13 

758  10 
10,090.00 
14,388  78 
246,396  82 

48.247.19 
51.776.11 
19.499.00 

10,000.00 
1,000  42 
17,500  oo 
273.876.12 
100,060  oo 
46,801.92 

I,  OOO  OO 

165.00 

Highland  Park  National.  . 
Loan  and  Trust  Co.  .  .  . 

Kenneth  National  
Nat'l  Bank  of  Republic.  .  . 



Footings  

649,714.63 

1,027.552.39 

9I7.570  55 



Balance 

109,981  84 

gain 

1,027,552.39 

National  Bank,  as  exhibited  by  the  second  footings  of  the 
exchange  slip.  To  enable  the  clerks  to  prepare  the  exchanges 
with  the  greatest  care,  the  first  debit  column  is  made  up  and 
footed  at  the  close  of  business  each  day  for  the  clearings  next 
day,  and  thus  the  heaviest  part  of  the  work  is  done  the  day 
before  the  clearings,  leaving  the  limited  time  in  the  morning 


284  THE  BUSINESS  OF  BANKING. 

to  finish  the  sheet.  The  "first  debit"  and  "  total  debit  "  col- 
umns are  made  up  and  footed  before  the  clerk  leaves  the  bank. 

The  "bank's  credit"  column  is  left  blank,  to  be  filled  up  at 
the  Clearing-house  by  the  other  banks  with  the  amounts 
brought  to  the  Clearing-house  against  the  Globe  National. 
The  footings  of  this  column  show  the  aggregate  amounts 
brought  by  the  other  banks  against  the  Globe  National,  and  as 
the  footings  of  the  "total  debits"  column  show  the  aggregate 
amount  brought  to  the  clearings  by  the  Globe  National,  the 
difference  between  these  two  columns  will  show  the  gain  or 
loss  of  the  morning's  settlement. 

In  the  sheet  we  have  presented,  we  find  that  the  Globe  Na- 
tional brought  exchanges  amounting  to  $1,027,  552.39,  and  paid, 
or  took  away,  clearings  amounting  to  $917,570.55.  Having 
brought  more  than  it  took  away,  it  is  therefore  entitled  to  a 
cash  payment  from  the  Clearing-house  of  the  difference, 
$109,981.84.  In  other  words,  the  Globe  National  Bank  owed 
the  twenty  other  banks,  in  the  association,  $917,570.55  as 
exhibited  by  the  drafts,  checks,  etc. ,  drawn  on  it  and  brought 
to  the  clearings  by  those  banks;  but  those  same  banks  owed 
the  Globe  National  $1,027,552.39,  for  paper  drawn  on  them, 
which  it  brought  to  the  clearings.  They  set-off  the  debts  of 
the  one  against  the  other,  and  the  result  is  that  there  is  due 
to  the  Globe  National  the  difference,  $109,981.84. 

Foiirth.  The  banks  which  bring  to  the  Clearing-house 
more  exchanges  than  they  take  away  are  called  credit  banks; 
those  that  bring  less  than  they  take  away  are  -called  debtor 
banks.  At  a  certain  time,  after  the  clearings  are  made,  the 
debtor  banks  pay  the  balance  due  from  them,  into  the  Clear- 
ing-house, and  these  balances  are  then  paid  to  the  creditor 
banks.  The  aggregate  amount  of  exchanges  brought  to  the 
clearings  is,  of  course,  the  same  as  that  taken  away,  so  the 
balances  due  to  the  creditor  banks  must  exactly  equal  the 
amount  due  from  the  debtor  banks. 

It  is  simply  an  application  of  the  principles  of  set-off. 


THE  CLEARING-HOUSE.  285 

Fifih.     The  amount  of  the  checks  for  each  bank  is  entered 
on  another  ticket,  called  a  check  ticket: 


NUMBER    4. 

STATE   NATIONAL    BANK. 

FROM   NUMBER  13. 

GLOBE  NATIONAL    BANK. 
25L'2C>8  Dollars,  GO  Cents. 


One  of  these  tickets  is  made  out  for  each  other  bank,  and  is 
delivered  with  the  packages  at  the  Clearing-house.  These 
tickets  are  used  to  check  the  entries  in  the  credit  column  of 
the  statement. 

Sixth.  The  footing  of  the  "total  debit"  column  of  the 
settling  clerk's  statement  is  made  on  another  blank,  called  a 
"credit  ticket." 


•fc 


Des  Moines  Clearing-House. 

Aug.  2,  1892. 


Credit  No. 


Globe  National  Bank,   $1,027,552.39. 

ROBERT  BOWLBY,  Settling  Clerk. 


This  ticket  shows  the  amount  brought  to  the  clearings,  and 
is  passed  to  the  manager  when  the  settling  clerk  enters  the 
Clearing-house.  From  these  tickets  the  manager  or  his  clerk 
makes  a  credit  entry  to  the  bank's  account. 

Seventh.  A  copy  of  the  amounts  in  the  debit  column  of 
the  settling  clerk's  statement  is  placed  on  another  blank  with  a 
space  on  the  right  for  signatures  instead  of  credits.  This  is 
what  is  called  the  "Settling  Clerk's  Receipt." 


286  THE  BUSINESS  OF  BANKING. 

§  490.  How  the  Clearings  are  Made.  First.  Each  bank- 
in  the  association  sends  to  the  Clearing-house  two  clerks — 
a  settling  clerk,  who  carries  his  statement  and  credit  ticket, 
and  a  messenger,  who  carries  the  settling  clerk's  receipt  and 
the  packages.  The  clearings  are  made  at  ten  o'clock,  and  the 
clerks  begin  to  arrive  a  little  before  that  time.  Preparing 
the  exchanges  is  one  of  the  busiest  times  of  the  day  for  most 
banks,  and  often  every  clerk  in  the  institution  is  put  at  this 
work,  and  then  the  settling  clerks  must  often  run  to  the  Clearing- 
house to  be  on  time.  As  each  settling  clerk  enters  he  passes 
his  credit  ticket,  showing  the  amount  his  bank  is  to  be  credited 
for,  to  the  manager.  These  amounts  are  entered  on  the 
"  Clearing-house  Proof."  This  work  is  done  so  rapidly  that 
in  a  few  minutes  after  the  last  ticket  has  been  handed  in  the 
credit  column  is  completed  and  footed,  showing  the  total  ex- 
changes for  the  day. 

Second.  A  few  moments  before  ten  o'clock  the  manager 
taps  his  bell  to  call  the  clerks  to  order.  The  settling  clerks, 
with  their  statements,  take  their  places  inside  their  respective 
desks,  and  their  own  messenger,  with  the  packages  and  re- 
ceipts, standing  outside  the  counter.  At  ten  o'clock  the  bell 
strikes  to  begin  the  exchanges.  "  No  variation  from  this 
time  is  ever  allowed,  on  any  pretext  whatever,  and  on  this 
point  the  Clearing-house  is  no  respecter  of  persons.  A  few 
years  ago,  Mr.  Windom,  Secretary  of  the  Treasury,  desired 
to  witness  the  exchanges  at  New  York,  and  was  apprised  of 
the  inflexible  punctuality  required.  He  arrived  some  minutes 
late,  only  to  find  that  the  clearings  had  taken  place  just  as  if 
he  had  been  an  individual  in  a  private  station." 

Third.  At  the  second  tap  of  the  bell  each  messenger  ad- 
vances one  step,  which  brings  him  in  front  of  the  desk  of  the 
first  bank  to  which  he  is  to  deliver  a  package  of  vouchers. 
He  hands  over  the  package  of  vouchers  against  that  bank, 
also  the  settling  clerk's  receipt,  on  which  the  settling  clerk 
enters  his  initials  to  show  that  the  vouchers  have  been  re- 


THE  CLEARING-HOUSE.  287 

ceived.  This  receipt  is  then  handed  back  to  the  messenger, 
who  advances  to  the  next  desk  and  repeats  the  operation. 
Besides  receipting  for  the  vouchers  received,  the  settling  clerks 
enter  the  amount  of  each  package  in  the  credit  column  of  their 
statements. 

This  continues  until  the  messenger  makes  the  entire  circle 
and  returns  to  his  own  desk.  He  then  gathers  up  the  pack- 
ages which  have  been  left  for  his  bank  and  returns  with  them 
to  the  bank,  while  the  settling  clerk  remains  to  strike  a  bal- 
ance. These  balances  show  how  much  each  bank  is  to  pay 
or  receive. 

The  settling  clerk  then  makes  out  a  "balance  ticket"  show- 
ing these  balances: 


w 

u 
p 

w 
u 

i-1 

M 


DES  MOINES  CLEARING-HOUSE. 

jVtf.   7J.  ^4#£\  ^,  7^p^. 

Z7r.  (S1/^^^  National  Bank,  Amt  Reed  $  9*7,570.55. 
Cr.       "  "  "      ^4;«V  ^r<?V     2,027,552.39. 

Balance  $ _ __ ^/<?  Clearing-house. 

Balance  due  the  Globe  National  Bank,  $109,981.84.. 
ROBT.  BOWLBY,  Settling  Clerk. 


These  balance  tickets  are  passed  to  the  manager's  desk, 
from  which  he  fills  up  the  debit  column  of  his  Clearing-house 
Proof  and  makes  the  final  footings  which  prove  all  the  work. 

Fourth.  As  soon  as  the  balances  are  entered  on  the  Clear- 
ing-house Proof,  the  columns  are  added  and  the  results  an- 
nounced. The  amounts  brought  to  the  clearings  are  credited 
in  the  "proof"  by  an  entry  in  the  credit  column  on  the  line 
containing  the  name  of  the  bank,  and  the  amounts  taken  away 
are  debited  in  the  debit  column.  The  balance  is  then  taken, 
showing  what  the  Clearing-house  owes  to  the  creditor  banks, 


288 


THE  BUSINESS  OF  BANKING 


and  what  the  debtor  banks  owe  to  the  Clearing-house.  If 
the  work  is  correct  the  debit  column  will  balance  with  the 
credit  column,  and  the  "  Due  Clearing-house"  column  will 
balance  with  the  "  Due  Banks"  column 

Fifth.    When  we  consider  that  this  proof  is  a  summary  of 
the  whole  clearings,  and  think  of  the  great  rapidity  of  the  work, 

DES  MOINES  CLEARING-HOUSE  PROOF. 

TUESDAY,  AUGUST    2,    1892. 


No. 

BANKS. 

Due  Clear- 
ing-house. 

Banks  Dr. 

Banks  Cr.    |  Due  Banks.  J  No 

2 

5 
4 
5 
6 
•7 
8 
9 

10 

ii 

12 

13 
14 
15 

16 

!i 

19 
20 

21 

Merchants'  National  

$  

$         8,742.10 
26,842.93 
96,000.00 
125,000.00 
3,275,820.00 
11,240,112.90 
675,390.11 
9,974,640.00 
1,901,771.19 
26,842,100.41 
2,962,431.26 
2,750,800.79 
917,570.55 

$        15,275.00 
50,871.00 
88,510.00 
99,071.12 
4,962,000.16 
1,648,000.20 
14,701,861.41 
14,600,400.72 
4,77i,750-io 
20,  147,401.  ;6 
4,870,000.71 

1,027,552.39 

2,000,708  02 
1,017,264,83 
41,270.99 
14,975  90 
1,004,962.80 
310,841,90 
464,180.42 

1,190,460  oo 

$       6,532.90 
24,028.07 

1 

a 
9 

10 

II 

12 
!3 

14 

!! 

17 
18 
19 

20 

21 

Columbia  National     

Citizens'  National    

7,490.00 

State  National  

25,928.88 
9,592,112.70 

Bank  of  America  
National  Bank  of  Commerce.. 
Des  Moines  National     .     ... 

1,686,180.16 

14,026,471.30 
4,625,760.72 
2,869,978.91 

1,907,56945 

109,981.84 
2,000,70^.02 

11,177-24 

586,220.20 

Central  National 

Hnion  National   

First  National  
National  Reserve 

£,694,698.65 

Iowa  National  
Globe  National 

2,750,800.79 

Manufacturers'  National  
National  Commonwealth  
Capital  City  National 

4,854,097.6 

50,4/5-84 

5,871,362.46 
91,7-16.83 
3,798.66 
418,742.60 
3,246,180.40 
2,186,3-13.83 
411,972  41 

Valley  National       .... 

Highland  Park   National 

Loan  and  Trust  Co  
Kenneth   National 

2,935,338.50 
1,722,153.41 

National  Bank  of  Republic  

778,487.59 

we  do  not  wonder  that  errors  occur.  An  error  may  be  in  the 
footings  of  the  credit  column  of  the  settling  clerk's  statement, 
and  be  it  ever  so  small  it  will  throw  the  proof  out  of  balance. 
If  the  proof  fails  to  balance,  the  manager  announces  that  the 
difference  is  so  many  dollars.  While  he  was  preparing  the 
proof  the  clerks  were  checking  off  their  credit  tickets  and 
testing  their  statements,  and  it  may  be  they  have  found  the 
errors  before  the  difference  is  announced. 

The  clearings  are  usually  made  in  from  five  to  ten  minutes, 
and  the  clerks  have  from  thirty  to  forty-five  minutes  to  make 
their  statements.  In  Boston  the  time  is  thirty  minutes,  and 
in  New  York  forty-five  minutes.  Sometimes  an  error  occurs 


THE  CLEARING-HOUSE.  289 

that  defies  detection,  and  the  final  process  is  for  the  settling 
clerks  to  pass  around,  by  turns,  to  the  other  desks  and  call 
off  the  amounts  of  their  exchanges  to  every  other  bank.  This 
will  usually  disclose  the  discrepancy. 

§  491.  How  the  Balances  are  Paid.  The  manner  in  which 
the  balances  are  paid,  and  the  time  for  such  payment,  is  a  mat- 
ter of  regulation  which  each  association  may  determine  to  suit 
itself  At  the  New  York  Clearing-house,  the  debtor  banks 
must  pay  their  balances  in  coin,  United  States  legal  tender 
notes,  gold,  silver  or  Clearing-house  certificates,  between  12:30 
and  1 130  P.  M,  At  Boston  these  balances  must  be  paid  before 
12:15  P.  M.  At  1:30  P.  M.  the  creditor  banks  come  to  get 
the  amounts  due  to  them  from  the  Clearing-house. 

"Should  any  bank  make  default  in  payment  of  its  balances 
at  the  proper  time,"  says  Bolles,  "  the  amount  of  that  balance 
must  be  immediately,  on  requisition  from  the  manager,  fur- 
nished to  the  Clearing-house  by  the  several  banks  exchanging 
with  the  defaulting  bank,  in  proportion  to  their  respective 
balances  against  that  bank  resulting  from  the  exchanges  of 
the  day.  The  amounts  so  furnished  constitute  claims  against 
the  delinquent  bank  only,  the  Clearing-house  being  in  no  way 
responsible.  The  defaulting  bank  is  immediately  suspended 
from  the  Clearing-house." 

§492.  Transfers.  When  the  banks  pay  their  balances,, 
the  manager  gives  them  a  receipt  for  the  amount  paid. 

To  avoid  the  risk  of  transferring  so  much  cash  to  and  from 


IP  "< 

t_s->    ^r 


$72,000.00.         Burlington,    Ioiva,  Aug.  2, 1892. 

ftj 

^  Transfer  to  the  credit  of  the  KENNETH  NA- 

TIONAL BANK,  Seventy-two  Thousand  Dollars,  and 
charge  the  same  in  settlement  of  the  balance  due  to 
Monroe  National  Bank. 


To  H.  P.  DRAKE,  S.  B.  SMITH, 

Afaitagtr.  ( \isJiier, 


2QO  THE  BUSINESS  OF  BANKING. 

the  Clearing-houses  in  payment  and  receipt  of  balances,  some 
associations  use  what  are  called  "  Clearing-house  Orders," 
something  like  the  one  given  herewith.  These  pass  as  cash 
between  the  settling  banks,  and  are  received  and  debited  or 
credited  by  the  manager  the  same  as  cash. 

Another  form  of  these  transfers  or  certificates,  and  the  one 
which  is  in  use  at  Des  Moines,  Iowa,  is  as  follows: 


DES  MQINES  CLEARING-HOUSE. 

$ Des  Moines,  loiva, 189 

In  settlement  of  the  balances  of  the  Exchanges  made 
between  the  members  of  this  Association  to-day,  there  is 

due  from  (No )  the 

__ _. Dollars, 

payable  on  demand  to  (No )  the 

Not  transferable,  and  without  recourse  upon  any  other 
member  of  tJiis  Association  after  two  o1  clock  P.  M.  of 
this  day. Manager. 


By  this  method  the  debtor  bank  is  ordered  to  pay  the  cred- 
itor bank,  and  the  manager  has  nothing  further  to  do  with 
the  matter. 

These  forms  differ  in  different  Clearing-houses,  but  the  pur- 
pose of  having  a  debtor  bank  pay  to  a  creditor  bank  is  always 
the  same.  Of  course,  the  use  of  these  transfers  makes  the 
payment  of  balances  and  even  the  exchange  of  vouchers  a 
matter  settled  entirely  between  the  banks,  the  Clearing-house 
having  nothing  to  do  but  to  apportion  the  payments  and 
make  out  the  transfer  tickets, 

§  493.  Fines.  At  the  New  York  Clearing-house  the  follow- 
ing fines  are  imposed  for  errors  not  found  by  10:45  A.  M. ; 


THE  CLEARING-HOUSE.  291 

*st.  Errors  in  the  credit  side  of  the  Settling  Clerk's 

Statement,  i.  e.  the  amount  brought __each  $3.00 

2d.    Errors  in  the  debit  entries,  i.  e.  amount  received,    "  2.00 

3d.    Errors  in  the  tickets "  2.00 

4th.  Errors  in  footing  debit  column "  i.oo 

5th.  For  being  late "  2.00 

6th.  Disorderly  conduct  or  disobedience  to  man- 
ager's instructions "  2.  oo 

7th.  Debtor  banks'  failure  to  appear  to  pay  their 

balances  before  1 130  P.  M __ _    "  3.00 

8th.  Errors  in  delivering  packages.. _    "  i.oo 

If  the  errors  are  not  discovered  at  1 1:15  A.  M.  the  fines  are 
doubled,  and  at  12  M.  quadrupled.  The  manager  notifies 
each  bank  once  a  month  of  the  fines  charged  against  it  and 
of  all  the  banks  fined.  The  object  of  these  fines  is  to  induce 
banks  to  send  clerks  to  the  Clearing-house  who  are  rapid  and 
accurate  in  figures  and  generally  competent. 

§  494.  Reclamations  and  Errors  in  the  Exchanges.  Where 
errors  occur  in  the  exchanges,  or  checks  be  returned  for  in- 
dorsement, or  for  any  other  reason,  these  are  adjusted  directly 
between  the  banks,  the  Clearing-house  being  in  no  way 
responsible  for  them.  Should  errors  be  found  in  the  specie, 
or  United  States  legal  tender  notes,  received  at  the  Clearing- 
house, in  payment  of  balances,  contained  in  bags  or  packages, 
sealed  and  properly  marked,  notice  must  be  sent  at  once  to 
the  bank  whose  mark  and  seal  the  package  bears,  and  recla- 
mation must  be  made  by  i  :oo  P.  M.  of  the  day  following  the 
receipt  of  such  bag  or  package.  The  Clearing-house  is  not 
responsible  for  the  contents  of  such  packages  or  bags,  and 
will  have  nothing  to  do  with  adjusting  any  errors. 

§  495.  Returning  Bad  Checks.  Clearing-houses  have  cer- 
tain regulations,  and  one  of  these  is  that  bad  checks,  "not 
good,"  are  to  be  returned  before  a  certain  hour,  usually  an 
hour  or  so  before  the  banks  close  for  the  day. 


292  THE  BUSINESS  OF  BANKING. 

Should  a  bank  receive  a  check  through  the  clearings  that  is 
not  good  it  must  return  it  to  the  bank  which  brought  it  to  the 
clearings. 

Should  a  bank  receive  several  checks  through  the  clearings, 
drawn  by  a  dealer  whose  deposit  is  not  large  enough  to  meet 
all  such  checks,  it  cannot  apply  the  balance  to  the  payment 
of  any  of  them.  It  may,  however,  notify  the  banks  from 
which  they  came  that  it  wishes  to  hold  such  checks  after  the 
time  of  making  reclamation,  in  anticipation  of  a  deposit  by 
the  drawer.  If  such  permission  is  received  a  bank  may  hold 
the  checks  for  payment,  and  though  none  will  be  paid  until 
the  whole  lot  is  paid,  yet  no  other  checks  by  the  drawer  can 
be  presented  over  the  counter  and  paid. 

In  a  casea  of  this  kind  the  drawee  bank  concluded  to  send 
all  the  checks  back  to  the  banks  which  had  charged  them 
through  the  Clearing-house.  This  was  done  at  2  o'clock,  and 
at  the  same  hour  the  drawer  failed.  The  messenger  delivered 
the  checks  in  the  same  way  as  he  usually  did  such  work,  and 
the  banks  nearest  the  drawee  bank  received  their  checks  first 
and  some  minutes  before  the  banks  that  were  furthest  away. 
These  banks  which  received  their  checks  first  immediately 
sent  them  back  to  the  bank  to  be  paid  over  the  counter.  This 
they  could  do  so  long  as  the  balance  held  out,  leaving  noth- 
ing for  the  later  presenters.  The  paying  teller  could  only, 
apply  the  rule  of  first  come  first  served,  and  this  was  what 
should  be  done  in  such  cases.  This  method  is  in  accordance 
with  law  and  good  banking.  To  pay  such  checks  in  the  order 
of  their  date  or  to  proportion  the  balance  among  the  checks 
would  be  incorrect  banking. 

§  496.  Country  Clearings.  Banks  that  are  not  members 
of  a  Clearing-house,  but  located  in  Clearing-house  cities,  make 
their  clearings  through  some  member  of  the  Clearing-house. 
Banks  located  in  country  towns  have  a  corresponding  bank  in 
a  Clearing-house  city  as  their  settling  agent. 

a  Patten  on  Practical  Banking,  p.  360. 


PART    II. 


COMMERCIAL  CREDITS 


CHAPTER    I. 

THE  THEORY  OF  CREDITS. 


5497.     Definition. 

498.  Meaning     of    credit    as    here 

treated. 

499.  Is  commercial  credit  a  science? 


§500.     Reasons  for  bludying  the  sub- 
ject. 
501.     Who  should  study  it. 


§  497.  Definition.  Credit  is  a  circulating  medium  of 
exchange.  If  the  producer  could  always  sell  for  ready  money 
to  the  manufacturer  or  wholesale  dealer,  he  could  use  this 
money  in  producing  other  goods  to  replace  those  just  sold. 
So,  if  the  retail  dealer  could  pay  ready  money  when  he  buys 
from  the  wholesale  dealer,  the  latter  might  immediately  pur- 
chase other  goods  to  replace  those  just  disposed  of.  In  the 
same  way  the  retail  dealer  might  replace  his  stock  of  goods, 
if  the  final  buyer,  the  consumer,  was  always  to  pay  ready 
money  for  his  purchases. 

Thus  we  see  that  if  everybody  would  pay  for  the  goods 
bought,  the  great  stream  of  production  would  go  on  as  fast 
as  demand  or  consumption  might  permit.  In  this  way  the 
movement  of  products  would  be  effected  by  money,  which,  in 
this  case,  would  be  the  circulating  medium.  But  this  is  by 
no  means  always  the  case.  In  fact  few  persons  can  get  the 
money  to  pay  for  all  purchases  at  the  time  of  buying.  Few 
merchants  or  manufacturers  have  enough  money,  on  com- 
mencing business,  to  pay  for  all  their  purchases.  If  produc- 
tion had  to  stop  here  until  the  consumer  paid  for  the  goods 
bought,  a  great  calamity  to  commerce  would  result. 


296  COMMERCIAL  CREDITS. 

But  now  suppose  the  producer  has  confidence  in  the  whole- 
sale dealer's  honesty  and  ability,  and  believes  he  will  pay 
when  he  says  he  will,  he  sells  the  goods  to  him  on  credit; 
that  is,  instead  of  the  money,  he  takes  the  wholesale  dealer's 
promise  to  pay  at  a  certain  specified  time. 

Thus  he  sells  the  goods  for  a  right  of  action,  a  debt,  or  for 
credit.  Now  as  this  sale  is  made  in  the  same  way  as  if  made 
for  money  we  see  that  credit  has  caused  exactly  the  same 
production  as  money.  Hence,  credit  is  a  circulating  medium 
of  exchange. 

This  debt  or  credit  may  be  recorded  as  a  debt  due  on  the 
merchant's  books  of  accounts,  or  it  may  be  represented  by  the 
buyer's  promissory  note,  or  by  a  bill  of  exchange.  It  makes 
no  difference  as  to  its  form  so  that  it  serves  the  same 
functions  in  commerce  as  money. 

Now,  the  wholesale  dealer  sells  on  credit  to  the  retail 
dealer,  who,  in  turn,  sells  on  credit  to  the  final  buyer,  the 
consumer.  In  the  latter  case  the  credit  is  usually  recorded  as 
a  book  account — few  consumers  give  any  written  promises  to 
pay. 

It  is  now  plain  that  at  every  stage  of  the  circulation  o\ 
products,  credit  does  the  work  of  money,  and  is  therefore  as 
much  of  a  circulating  medium  as  money. 

Without  credit  the  great  volume  of  business  of  the  business 
world  could  not  be  transacted.  There  is  not  enough  money 
in  the  United  States  to  do  the  business  of  a  single  one  of  our 
large  cities. 

§  498.  Meaning  of  Credit  as  Here  Treated.  It  is  not 
our  intention,  in  this  work,  to  treat  credit  from  an  economi- 
cal or  theoretical  standpoint.  The  intention  is  to  present  to 
the  business  man,  the  banker  and  the  student,  a  helpful  treatise 
on  the  subject  of  practical  credit  making.  To  do  this  it  is 
necessary  to  restrict  the  meaning  of  the  word  to  its  practical 
meaning,  i.  e.,  the  selling  of  goods  on  time.  Taking  this  view 
of  the  word,  its  simplest  meaning  is  to  tn^st. 


THE  THEORY  OF  CREDITS.  297 

We  wish  to  treat  the  subject  in  such  a  manner  that  those 
who  have  goods  to  sell  will  know  what  constitutes  a  favorable 
or  unfavorable  credit  condition,  so  that  they  may  trust  out 
their  goods  to  those  who  will  probably  pay  for  them. 

§499.  Is  Commercial  Credit  a  Science?  Fully  ninety 
per  cent,  of  the  financial  transactions  of  today  are  made  upon 
credit  in  some  form.  It  is,  therefore,  not  strange  that  the 
study  of  this  subject  should  employ  some  of  our  best  intelli- 
gence. A  hundred  years  ago  the  meaning  of  the  term  credit, 
in  this  country,  differed  as  much  from  its  meaning  today,  as 
the  sickle  differs  from  the  self-binder.  Pioneers  do  not,  as  a 
rule,  carry  much  collateral  in  their  belts.  The  mutual  de- 
pendence incident  to  primitive  conditions,  creates  a  common 
confidence,  and  this,  in  a  large  measure,  constituted  the  basis 
of  credit  in  the  early  days.  The  loaning  of  a  sum  of  money 
by  a  friend  to  another  in  distress,  without  security,  would  in 
no  sense  be  considered  an  extension  of  credit  at  this  day.  It 
would  be  a  reposing  of  confidence,  pure  and  simple.  The 
commercial  fabric  has  become  so  large,  and  credit  is  so  clearly 
the  cohesive  element  in  it,  and  its  investigation  has  become 
so  thorough,  that  it  may  be  fairly  demonstrated  a  commercial 
science. 

"  Credit  is  not  a  characteristic  but  a  condition.  Not  any  one 
or  several  of  the  elements  of  honesty,  means,  intelligence, 
business  ability,  past  record,  family  connections,  etc.,  would 
in  itself  constitute  a  safe  basis  of  credit.  Credit  is  the  re- 
sultant of  all  these  and  a  great  many  more  factors.  It  is  de- 
termined in  the  same  manner  as  the  engineer  determines  the 
resultant  strength  of  the  iron  bridge,  by  taking  into  account 
all  its  component  parts,  such  as  foundations,  piers,  beams, 
spars,  stays,  rivets,  as  well  as  curves,  angles  and  spans. 
Credit,  like  the  bridge,  is  calculated  to  sustain  super-imposed 
weight  as  well  as  withstand  lateral  pressure.  Its  entire 
strength  is  no  more  than  its  weakest  part. 

"In  determining  its  usefulness,  special  reference  must  be 


298  COMMERCIAL  CREDITS. 

had  to  extraordinary  occurrences,  unusual  seasons  and  shifting 
tides. 

"  Credit  is  by  no  means  an  exact,  but  rather  a  speculative 
science,  and  is  more  difficult  of  mastery  than  'the  Greek  verb,' 
'Butler's  Analogy'  or 'The  Nebular  Hypothesis.'  The  ele- 
ments of  a  man's  present  condition  are  not  valuable  as  a  basis 
for  credit  calculations,  unless  we  can  find  by  induction  that 
they  stand  as  exponents  of  general  principles. 

"Take,  for  example,  the  element  of  means.  We  want  to 
inquire  whether  these  means  are  a  growth  or  a  gift.  If  a 
growth,  we  want  to  analyze  all  the  rills  and  rivulets  that 
helped  to  swell  the  stream  to  its  present  proportions;  we  want 
to  see  whether  its  course  has  been  straight  or  devious; 
whether  it  has  been  open  for  inspection,  or  diverted  into  dark 
and  hidden  courses,  when  a  storm  cloud  gathered.  If  a  gift, 
perhaps  the  stream  of  wealth  came  down  from  former  genera- 
tions, and  we  want  to  know  whether  it  has  been  kept  pure  or 
become  polluted;  whether  its  flow  is  still  strong  and  full,  or 
whether  the  quicksands  are  absorbing  it.  Preservation  is 
sometimes  as  good  as  acquisition.  Stolen  gold  in  a  credit  fab- 
ric, would  blacken  at  the  first  touch  of  sunlight,  while  means 
depleted  by  response  to  honest  obligations  would  be  worth  a 
premium  in  the  calculation.  Thus,  means  may  be  either  a 
positive  or  negative  quantity — a  plus  or  minus  factor  in  the 
credit  problem.  After  following  out  these  general  lines  regard- 
ing means,  we  must  study  the  sub-divisions,  then  take  all  the 
other  elements  of  a  man's  condition,  and  analyze  them  one  by 
one  in  like  manner.  After  this  is  done,  the  value  of  each  fac- 
tor known  or  approximated,  then  we  are  ready  to  begin  the 
solution  by  a  deductive  process. 

"At  each  step  the  subject  widens  in  scope  and  interest,  and 
becomes  more  difficult  as  we  pass  from  the  study  of  material 
to  immaterial  qualities,  from  matter  to  mind. 

"To  add  further  interest  to  the  study,  we  might  add  that 
no  two  credit  problems  have  the  same  factors,  and  the  purposes 


THE  THEORY  OF  CREDITS.  299 

for  which  credit  is  sought  are  as  various  as  the  solicitations 
are  numerous."* 

§  500.  Reasons  for  Studying  the  Subject.  As  we  have 
already  shown,  the  transactions  which  constitute  commerce 
are  not  all  for  cash.  We  part  with  our  property  and  receive 
in  lieu  thereof  the  buyer's  oral  or  written  promise  to  pay. 
Will  the  buyer  discharge  this  promise?  This  question  can  be 
answered  by  an  analysis  of  the  buyer's  honesty,  and  success; 
and  his  success  depends  on  his  ability,  character,  economy, 
capital,  industry,  experience,  and  other  qualifications  and  con- 
ditions. Before  trusting  out  our  goods  we  should  decide  as 
to  the  probability  of  getting  our  money  and  thereby  our  profit, 
which  is  the  object  of  business.  We  must  make  this  decision 
before  selling,  and  not  afterward.  We  should  know  when  to 
sell,  and  our  ability  in  this  matter  is  of  the  greatest  import- 
ance. The  ability  to  sell  goods  is  secondary.  The  ability  to 
do  the  most  business,  does  not  determine  a  man's  success. 
To  be  able  to  sell  to  buyers  who  will  pay  is  of  first  importance. 
While  trade  and  credit  go  hand-in-hand,  yet  a  proper  exercise 
of  credit  giving  determines  a  man's  success  in  trade.  In  fact 
trade  depends  largely  upon  credit,  and  credit  depends  on  our 
confidence  in  the  buyer's  ability  to  pay.  To  make  a  favorable 
credit,  our  confidence  must  be  based  on  good  judgment  and  a 
thorough  knowledge  of  favorable  credit  conditions  in  the  buyer. 

Our  credit  system  is  the  foundation  of  all  our  commercial 
and  financial  interests,  and  the  wonderful  growth  of  commerce 
in  this  country  is  directly  due  to  it.  It  affects  the  welfare  of 
every  individual,  and  on  a  wise  use  of  it  depends,  very  largely, 
the  financial  success  of  all.  Can  any  study  be  of  greater  im- 
portance? Because  few  are  informed  on  the  subject,  is  not 
due  so  much  to  a  lack  of  interest  as  to  a  lack  of  literature  on 
the  subject,  and  therefore  the  want  of  proper  facilities  for 
gaining  the  requisite  information.  Every  merchant,  and  every 

*  W.  R.  Grim,  in  "The  Capitalist." 


300  COMMERCIAL  CREDITS. 

business  man  is,  by  his  daily  experience,  constantly  impressed 
ivith  the  importance  of  a  proper  study  of  the  subject. 

Hon.  Edward  Everett  once  said:  "  I  should  deem  the  for- 
mation of  sound  and  sober  views  on  the  study  of  credit  one  of 
the  most  desirable  portions  of  a  young  merchant's  education." 

No  set  of  rules  can  be  given,  and  no  amount  of  knowledge 
gained,  that  will  insure  absolute  safety  in  extending  credit 
favors.  We  do  not  expect  this.  No  matter  how  much  knowl- 
edge, or  experience,  or  conservatism  a  man  may  have,  his  judg- 
ment will  not  always  prove  to  have  been  correct,  so  that  to  a 
young  man  who  is  about  to  enter  the  world  of  business  and 
whose  experience  is  yet  to  be  gained,  a  proper  knowledge  of 
the  subject  in  hand  cannot  be  over-estimated. 

§  501.  Who  Should  Study  it.  First.  The  subject  is  of 
the  utmost  importance  to  the  business  interests  of  the  entire 
country,  and  it  thereby  affects  the  interest  of  every  individual. 
While  we  treat  the  subject  almost  wholly  from  the  seller's 
point  of  view,  the  object  of  making  the  reader  a  competent 
judge  of  whom  to  trust  safely  is  not  for  a  moment  lost  sight 
of,  yet  the  principles  set  forth  will  enable  the  buyer  to  con- 
duct himself  in  such  a  manner  as  to  be  entitled  to  necessary 
credit  favors.  No  other  country  on  the  globe  does  so  much 
credit  business  as  we  do,  and  therefore  every  man  in  and  out 
of  trade  should  learn  all  he  can  on  the  subject. 

Second.  Every  man  engaged  in  business,  trade,  manufacture, 
and  whoever  does  much  credit  giving;  every  clerk,  cashier, 
bookkeeper  and  salesman  who  is  often  asked  for  credit  favors; 
every  boy,  young  man,  or  young  woman  who  contemplates  a 
life  of  business  or  who  expects  to  enter  any  position  connected 
with  a  business  establishment;  all  these  should  be  well  drilled 
in  this  important  branch  of  a  business  education. 

Third.  Lawyers,  who  act  as  collecting  agents  for  mer- 
chants, should  be  well  versed  in  this  matter,  or  the  wisdom  of 
their  recommendations  to  their  client  for  further  time,  on 
behalf  of  the  debtor,  will  not  be  apparent.  They  should  know 


THE  THEORY  OF  CREDITS.  301 

enough  about  business  affairs  and  what  constitutes  a  safe 
credit  favor  to  enable  them  to  be  governed  by  the  same  rules 
regarding  property,  volume  of  business,  nature  of  the  assets, 
and  the  like,  to  determine  questions  of  credit  extension  in  the 
same  way  as  they  are  determined  by  capable  business  men. 

Fourth.  The  subject  of  credit  is  of  great  importance  to 
every  banker.  The  whole  business  of  banking  is  built  on 
Icredit.  Every  deposit,  every  loan,  every  discount,  every  draft, 
every  bank  note — the  entire  business — is  simply  a  system  of 
credit  giving.  When  a  banker  discounts  a  real  or  an  accom- 
modation bill,  or  a  note,  he  is  trusting — in  the  absence  of  actual 
securities  deposited — to  the  borrower's  ability  and  willingness 
to  pay,  just  as  a  merchant  does  when  he  extends  credit  to  a 
buyer.  A  thorough  knowledge  of  credit  is  as  essential  to  the 
banker  as  to  the  merchant. 

Fifth.  And  the  traveling  salesman  should  be  a  competent 
judge  of  whom  to  trust,  as  a  great  many  credit  favors  are  given 
on  his  recommendation.  Not  all  commercial  travelers  are 
good  judges  of  credits.  Many  of  them  are  so  eager  to  make 
sales  that  they  treat  the  reliability  of  their  customers  as  a  sec- 
ondary matter.  This  is  not  only  wrong,  but  the  agent  does 
not  thereby  attain  that  degree  of  valuable  service  which  he 
ought  to  render  to  his  house.  If  he  be  a  good  salesman  and 
likewise  a  good  judge  of  credits  he  is  doubly  valuable  to  his 
firm.  To  sell  is  much  easier  than  to  collect. 


502. 


CHAPTER    II. 

LOSSES  BY  FAILURES. 

Business  Failures.  |  £  503.     Percentage  of  loss. 


§  502.     Business  Failures.     The  following  table  exhibits 
the  business  failures  in  the  United  States  for  thirteen  years  : 


g 

>H 

No.  of 
Failures. 

Total 
Liabilities 

Actual 
Assets 

Per  cent,  of 
Assets  to 
Liabilities 

1881 

5.929 

$76,024,135 

$35,936,218 

•47 

1882 

7.635 

93,200,000 

47,431,625 

•5i 

1883 

10,299 

175,942,718 

90,896,246 

-52 

1884 

11,620 

248,721.756 

134,640,200 

•54 

1885 

11,1x6 

119,176.244 

55,272,914 

.46 

1886 

10.568 

113,624,218 

55,889,641 

•49 

1887 

9-740 

130,642,800 

64,676,410 

-50 

1888 

10,587 

120,242,402 

61,999,911 

•52 

1889 

11,719 

140,359-490 

70,599,769 

•50 

1890 

10.673 

175,032,836 

92,775,625 

•53 

1891 

12,394 

193,178,000 

102,893,000 

•53 

1892 

io,344 

114,000,000 

60,000,000 

•53 

1893 

15,560 

402,400,000 

262,400,000 

•65 

We  also  present  herewith  a  classification  of  the  failures  of 
1890  and  1891,  according  to  causes  which  led  to  disaster. 
This  table  was  arranged  by  Bradstreet's  Mercantile  Agency, 
and  represents  a  great  task.  The  "disasters"  include  com- 


Failure  due  to 

No. 
1891 

No. 
1890 

Assets 
1891 

Assets 
1890 

Liabilities 
1891 

Liabilities 
1890 

Incompetence  . 

2,021 

2,005 

$8,563  259 

$10,656,524 

$16,268,941 

$21,545,326 

Inexperience  

611 

4,077,785 

1,951,933 

6,021,670 

3,562,065 

Lack  of  capital 

.  gg_ 

4i°52 

34,572,098 

23,571,043 

61,716,157 

45,818,944 

Unwise  credits  

509 

502 

5,389,382 

3,965,656 

9,223,319 

7,204,055 

Failures  of  others  .  

279 

257 

8,723,326 

9  645,954 

16,195,080 

20,790,648 

Extravagance 

251 

i  265  670 

2  584  181 

2  626  381 

Neglect..  

383 

38O 

1,049,640 

1,223,198 

2,079,709 

2,411,502 

Competition 

199 

246 

i  335  549 

i  856  352 

2  194  551 

Disaster 

i  ^8 

28  637  846 

Speculation  -. 

341 

664 

12  198  055 

8,917  424 

23,356,718 

19,616,481 

Fraud 

87«i 

di6 

i  604  828 

6  612  069 

Totals    .  . 

12,394 

10  673 

$102  893  ooo 

$92  77S  625 

$193  178  ooo 

$175  032  836 

302 

LOSSES  BY  FAILURES.  303 

mercial  crises,  floods,  fires  and  crop  failures,  and  "frauds" 
represent  fraudulent  disposition  of  property. 

It  must  be  understood  that  these  records  do  not  exhibit  all  the 
failures  of  the  country,  for  where  failures  have  occurred  and 
the  assets  were  sufficient  to  pay  dollar  for  dollar,  and  the  loss, 
therefore,  fell  entirely  upon  the  principal,  such  failures  are  not 
reported  and  are  not  included  in  these  tables.  Statistics  of 
this  kind  are  very  meager,  and  not  until  1890  have  the  mer- 
cantile agencies  attempted  any  compilation  of  such  facts,  and 
no  attempt  has  yet  been  made  to  report  those  who  have  been 
unfortunate  in  business,  unless  some  of  the  loss  has  fallen  on 
the  creditors. 

Statistics  show  that  95  per  cent,  of  all  who  enter  mercan- 
tile pursuits  fail  at  some  period  of  their  career.  This  seems 
to  be  an  appalling  state  of  affairs,  and  if  it  be  true  there 
must  be  some  good  explanation  for  it. 

The  changes  in  business  concerns  throughout  the  United 
States  and  Canada  are  computed  at  2,000  a  day.  Not 
necessarily  are  all  these  failures,  for  included  in  the  changes 
are  dissolutions,  retirements,  deaths,  changes  of  ownership 
and  fires.  There  are  at  the  present  time  nearly  1,220,000 
business  names  in  the  two  countries,  and  that  about  one-half 
of  these  should  be  involved  in  changes  during  the  course  of 
300  working  days  is  almost  incredible. 

"  Personal  environments  seldom  alter  the  individual  financial 
condition  of  a  merchant,  except  so  far  as  rises  in  values  are  con- 
cerned, hence,  as  thorough  a  knowledge  of  character,  capacity 
and  capital  of  a  debtor  as  can  be  had  is  as  inseparable  to  the  dis- 
penser of  credit  as  a  compass  is  to  a  mariner.  Business  oper- 
ations are  becoming  mere  and  more  ephemeral  in  their  char- 
acter, consequently  more  faith  is  needed  in  the  transaction 
thereof,  and  faith  without  knowledge  is  simple  superstition — a 
rudderless  vessel,  indeed,  to  widen  commerce  upon. 

"The  greater  number  of  failures  is  not  among  men  of 
limited  means,  but  among  men  of  limited  knowledge.  Abund- 


304  COMMERCIAL  CREDITS. 

ance  of  capital  at  the  start  is  not  essential  to  a  successful 
business  man.  A  good  character,  an  industrious  disposition, 
economical  habits  and  a  knowledge  of  the  business  underta- 
ken, are  qualifications  that  capital  cannot  make  amends  for." 

§  503.  Percentage  of  Loss.  We  find  that  the  present 
capital  employed  in  commercial  pursuits  is  about  $4,  500,000,- 
ooo.  It  is  safe  to  assume  that  about  $1,300,000,000  of  this 
is  beyond  the  danger  line  of  the  credit  system;  this  leaves 
$3,200,000,000  of  capital  that  is  affected  by  and  dependent 
on  the  credit  system  for  its  employment.  To  estimate  the 
per  cent,  of  loss  on  the  business  of  the  country  we  may  multi- 
ply the  capital  by  four,  as  we  probably  turn  it  that  many 
times  a  year;  this  gives  us  a  volume  of  business  of  $12,800,- 
000,000  per  annum  that  is  subject  to  and  dependent  on  the 
credit  system.  We  also  find  from  our  table  of  business  fail- 
ures that  for  eleven  years  the  average  annual  loss  has  been 
$160,000,000;  this  makes  about  i\  per  cent,  loss  on  this  vol- 
ume of  business. 

Thus  it  appears  that  we  are  doing  an  immense  amount  of 
business,  not  alone  for  nothing,  but  at  an  actual  loss  of  capi- 
tal. It  is  often  asserted  that  the  merchant  figures  his  profits 
high  enough  to  cover  all  losses  from  bad  debts,  and  that, 
therefore,  the  solvent  buyers  pay  the  losses  occasioned  by  those 
who  are  insolvent  and  cannot  pay.  But  this  is  not  always 
the  case.  In  many  localities  the  competition  is  so  sharp 
that  the  merchant,  to  hold  and  extend  his  trade,  must  fix  his 
profits  without  any  allowance  for  loss,  and  whatever  is  lost 
by  reason  of  bad  debts  is  so  much  of  a  drain  on  the  net  earn- 
ings of  the  business. 

Now  we  are  confronted  with  the  query:  Does  engagement 
in  business  render  such  enormous  losses  necessary  and  un- 
avoidable ?  Yes  and  no,  with  greater  stress  on  the  no.  Such 
losses  are,  for  the  most  part,  due  to  carelessness,  inexperience 
and  ignorance  on  the  part  of  our  business  men  as  to  good 
business  principles.  It  results  from  a  lack  of  knowledge  and 
judgment  in  extending  credit. 


CHAPTER   III. 


MERCANTILE  AGENCIES  AND  THEIR  REPORTS. 


§504.   The  mercantile  agencies. 

505.  The  object. 

506.  How  reports  are  made. 


§507.   Why  the  agencies  are  fallible. 

1.  Business  changes  and  spec- 

ulations. 

2.  Permanent  improvements. 

3.  The  weak  features. 

4.  Fees  for  attorneys. 

508.  Are    mercantile     agencies     re- 
sponsible for  their  reports? 

§  504.  The  Mercantile  Agency.  The  mercantile  agency  was 
a  direct  result  of  the  enormous  losses  caused  by  the  crisis  of  1 837. 
Certain  parties, well  acquainted  with  the  credit  system  and  com- 
mercial affairs, conceived  the  idea  of  forming  an  organization  for 
the  purpose  of  furnishing  protection  to  the  mercantile  inter- 
ests of  the  country.  For  the  furtherance  of  this  idea,  several 
leading  houses  clubbed  together  and  employed  a  Mr.  Church 
to  gather  information  regarding  dealers'  conditions.  This 
was  the  beginning  of  our  mercantile  agency  system. 

From  this  beginning  the  agencies  have  grown  until  more 
than  a  million  individuals,  firms  and  corporations  in  this 
country  and  Canada,  are  reported  by  the  leading  agencies. 

R.  G.  Dun  &  Co.  and  Bradstreet's  are  the  foremost  agencies 
in  this  country.  They  each  have  a  main  office  at  New  York 
city  and  branch  offices  in  each  of  the  principal  cities  of  the 
United  States  and  Canada.  They  also  have  branch  offices  at 
the  more  prominent  points  abroad,  such  as  London,  Paris,  Ber- 
lin, Vienna,  Melbourne,  and  other  prominent  cities.  In  Eu- 
rope they  have  no  mercantile  agencies,  and  these  branch 
offices  are  established  for  the  benefit  of  resident  subscribers. 


306  COMMERCIAL  CREDITS. 

§  505.  The  Object.  The  object  of  the  mercantile  agency  is 
to  furnish  subscribers  with  information  touching  the  advance- 
ment and  d  evelopment  of  trade,  and  for  their  protection  against 
fraudulent  dealers,  or  against  taking  undue  risk,  and  the  like, 
in  granting  credit.  They  afford  facilities  to  the  business  com- 
munity without  which  our  extensive  business  would  be  seri- 
ously crippled,  and  credits  and  therefore  business  generally 
wonderfully  restricted.  The  constantly  increasing  business  of 
the  country  may  truly  be  said  to  be  due  in  a  measure  to  these 
agencies,  and  the  aid  and  protection  furnished  by  them  is 
becoming  better  understood  and  the  value  of  their  information 
more  fully  appreciated. 

In  the  very  nature  of  things  the  mercantile  agency  can 
never  hope  to  reach  infallibility.  Men  do  not  confine  their 
working  capital  to  their  legitimate  business,  but  devote  it  to 
outside  and  speculative  ventures,  which  may  not  always  prove 
successful.  But,  while  not  perfect,  it  is  nevertheless  a  great 
aid  to  business  men. 

§  506.  How  Reports  are  Made.  Books  of  reference,  re- 
vised every  quarter,  are  furnished  subscribers.  These  contain 
the  names,  business  and  credit  rating,  whether  high,  good, 
fair  or  limited,  and  the  estimated  pecuniary  strength  of  all  the 
dealers,  merchants,  manufacturers,  etc.,  of  the  whole  country. 

Special  reports  are  also  made  to  subscribers.  These  are 
made  in  detail,  setting  forth  the  honesty,  character,  antece- 
dents, competition,  capital,  education,  liabilities,  ability,  expe- 
rience, etc.  The  telegraph  is  often  used  in  making  special 
reports. 

Besides  these  they  publish  a  weekly  paper  in  which  they 
record  important  financial  and  commercial  facts  for  the  infer-, 
mation  of  subscribers. 

Subscribers  are  also  furnished  with  a  list  of  banks,  bankers, 
and  banking  towns;  state  collection  and  assignment  laws,  etc.> 

§  507.  Why  the  Agencies  are  Fallible.  First.  "Thei 
American  business  community  is  especially  prone  to  specula- 


MERCANTILE  AGENCIES  AND  THEIR  REPORTS.  307 

tion,  and,  as  speculation  goes,  it  is  largely  at  the  expense  of 
regular  business  interests.  No  restrictions  are  possible  to 
regulate  the  exercise  of  individual  judgment  in  regard  to  the 
employment  of  money  once  in  the  possession,  either  in  fee 
simple  or  in  trust.  From  this  alone  it  will  be  seen  that  the 
financial  status  of  business  concerns  would  vary  considerably, 
even  from  one  month  to  another.  Ratings  would  require  more 
frequent  revision  than  is  possible  with  the  present  facilities 
of  the  agencies  in  order  to  cover  these  changes  of  conditions. 
It  is  usually  only  subsequent  developments  that  bring  these 
matters  to  light,  and  that  at  a  time  when  the  knowledge  of 
the  facts  ceases  to  be  of  any  benefit  to  us. 

Second.  "  But  diversion  of  capital  from  its  legitimate  uses, 
and  to  purposes  not  at  all  speculative,  is  also  a  matter  of 
importance.  Many  business  men,  from  miscalculation  and 
poor  judgment,  invest  too  large  a  portion  of  their  working 
capital  in  permanent  improvements  and  outside  ventures,  not 
necessarily  of  a  speculative  nature,  and  thereby  tie  up  capital 
which  should  have  remained  a  working  force.  Although  real 
estate  and  permanent  improvements  should  constitute  the  best 
representatives  of  capital  invested,  and  indicate  the  highest 
order  of  assets,  yet  we  know  from  experience  that  this  class 
of  property  is  not  convertible  at  will  in  the  event  of  a  failure, 
nor  is  it,  as  a  rule,  available  to  the  creditors.  The  mercantile 
agency,  however,  has  no  right  to  ignore  capital  thus  invested; 
it  is  obliged  to  give  it  a  place  among  the  assets  and  make  its 
ratings  accordingly. 

"For  this  reason  the  keys  used  by  the  various  agencies  to 
denote  capital  are  less  to  be  relied  upon  than  the  report  itself, 
for  the  latter  gives  details  and  shows  what  the  capital  consists 
of  and  is  used  in,  and  from  these  we  make  our  own  deduc- 
tions. The  nature  of  the  assets  has  much  to  do  with  the  value 
of  the  ratings  for  the  purpose  of  basing  credits. 

Third.  "This  much  is  certain,  if  we  could  always  make 
sure  of  getting  reliable  reports,  whatever  their  source  might 


308  COMMERCIAL  CREDITS. 

be,  the  credit  man's  task  would  be  made  easier,  and  losses  by 
bad  debts  would  be  reduced  to  a  minimum.  The  weak  feat- 
ure of  the  mercantile  agency  system  is  its  dependence  on  cor- 
respondents, who  are  expected  to  give  their  time  and  service 
gratuitously,  or  nearly  so,  and  we  necessarily  have  to  contend 
with  frequent  negligence,  inaccuracy,  and  incompetency,  and 
sometimes  even  personal  favoritism  or  prejudice,  as  the  case 
may  be.  That  this  has  been  and  is  being  remedied  to  a  con- 
siderable extent  by  the  better  class  of  agencies,  we  have  evi- 
dence from  the  improving  quality  of  service  rendered.  Good 
services  command  good  pay,  and  it  is  due  to  the  business 
world  that  the  agencies  secure  competent  correspondents  and 
pay  and  charge  accordingly."* 

Fourth.  The  mercantile  agencies  recommend  attorneys  to 
persons  having  collection  claims,  and  for  this  they  expect  the 
attorney  to  furnish  mercantile  reports  of  parties  in  his  local- 
ity. Sometimes  an  agency  will  pay  a  fee  for  a  report,  but  the 
great  majority  go  on  the  supposition  that  the  commission  on 
their  patron's  claim  is  sufficient  for  the  attorney.  Doing  busi- 
ness gratis,  the  attorney  cannot  afford  to  make  a  thorough 
investigation  and  his  report  is  often  simply  an  opinion  that 
the  party  is  supposed  to  be  good — usually  good.  Of  course  the 
lawyer  expects  to  establish  a  large  clientage  and  his  compen- 
sation comes  therefrom,  and  this  feature  often  gives  a  savor  of 
favoritism  to  his  reports. 

Some  months  ago  the  "Merchant,  Banker  and  Attorney, "of 
Boston,  Mass.,  advocated  the  idea  of  sending  out  fees  to 
lawyers  when  a  report  was  required.  They  then  sent  an 
inquiry  to  prominent  attorneys  asking  their  opinion  relative  to 
the  matter,  and  among  others  the  following  letter  was  received 
from  E.  C.  Ferguson,  of  the  firm  of  E.  C.  Ferguson  &  Good- 
now,  Attorneys  and  Counsellors,  Chicago,  Illinois: 

•  P.  R.  Earling,  on  Mercantile  Credits. 


MERCANTILE  AGENCIES  AND  THEIR  REPORTS.  309 

CHICAGO,  ILL.,  Dec.  29,  1891. 
MESSRS.  LADD,  HUNT  £  Co., 

Boston,  Mass. 

Gentlemen, — The  question  as  to  whether  attorneys  should  be  paid  for 
financial  reports  where  the  inquiry  comes  from  mercantile  agencies,  for  which 
the  attorney  is  acting  as  correspondent,  either  for  the  benefit  of  his  name 
being  published  in  their  list,  or  where  he  pays  for  the  privilege  of  having  his 
name  published  and  contributes  his  services  by  way  of  answering  inquiries  for 
the  prospective  fees  to  be  realized  out  of  possible  collections, 'has  certainly 
aroused  considerable  interest  among  commercial  lawyers.  There  are  many 
circumstances  which  enter  into  the  question,  as  to  whether  or  not  they  should 
be  paid  for  answering  each  inquiry  such  a  fee  as  will  entitle  the  sender  of  the 
inquiry  to  adequate  service,  and  in  a  measure  reimburse  the  attorney. 

From  the  position  of  having  answered  through  our  office,  during  the  past 
ten  years,  about  twenty-five  thousand  independent  inquiries,  and  also  having 
had  in  this  department  the  opportunity  of  judging  what  service  attorneys  in 
general  render  by  making  the  inquiries  ourselves,  the  subject  is  in  a  consid- 
erable degree  familiar  to  us.  In  small  or  moderate  sized  towns  or  cities,  where 
the  attorney  by  natural  daily  intercourse  with  the  business  community  is 
familiar  with  the  financial  condition  of  the  merchants,  and  where  the  prox- 
imity of  the  attorney's  office  to  the  person  inquired  about  is  very  near,  he  can 
with  little  exertion  answer  all  ordinary  inquiries;  but  beyond  this  position, 
and  especially  in  large  cities,  where  the  distance  between  the  attorney's  office 
and  the  merchant  or  manufacturer  varies  from  two  to  ten  miles,  there  is  no 
method  by  which  he  can  ascertain  the  standing  of  the  person  inquired  after 
except  by  personal  interview,  and  when  this  fact  exists  in  any  comparative 
degree  no  attorney  can  with  any  degree  of  accuracy  supply  information  which 
is  adequate  for  the  purpose  of  basing  a  commercial  rating,  nor  can  he  report 
accurately  upon  merchants  in  towns  more  than  an  ordinary  distance  away 
from  his  residence. 

The  methods  adopted  by  nearly  all  the  agencies,  including  Bradstreet's 
and  Dun's,  are  such  that  the  information  obtained  is  almost  entirely  unreli- 
able, and  is  no  doubt  conducive  to  a  great  many  failures  and  naturally  large 
losses  resulting.  The  best  service  can  be  obtained  when  the  attorney  or 
correspondent  receives  a  small  fee  for  the  answering  of  each  inquiry,  and 
if  perchance  there  are  a  large  number  coming  daily,  it  enables  him,  if  a  young 
man  and  not  very  busy,  to  devote  some  portion  of  his  time  to  making  the 
proper  investigations,  and  it  permits  the  older  attorney  to  engage  some  intel- 
ligent person  to  attend  to  this  class  of  work.  There  is  no  question  that  the 
special  reporting  system,  which  necessitates  making  the  inquiry  at  the  date 
of  the  sale  or  purchase,  produces  more  good  results  than  any  published  rat- 
ing. In  this  time  of  rapid  commercial  increase  or  disintegration,  the  necessity 
of  knowing  the  man's  ability  and  disposition  to  pay  his  bills  thirty  days  after  the 


3io  COMMERCIAL  CREDITS. 

sale  is  important,  and  no  compiled  matter  six  months  old  is  depended  upon 
by  the  wide  awake  credit  manager. 

True  it  is  that  a  reliable  agency  may  send  a  large  number  of  collections, 
which  in  a  measure  will  compensate  for  the  reporting  services  if  rendered  free, 
but  the  extremely  large  number  of  infant  agencies,  endeavoring  to  creep  to 
the  front  by  offering  the  seductive  method' of  free  reports,  is  becoming  a  bur- 
den to  the  lawyer,  and  the  only  change  that  will  act  as  a  remedy  is  for 
agencies  to  arrange  their  plan  so  that  the  attorney  each  time  an  inquiry  is 
made  will  receive  a  small  fee,  and  especially  is  this  needed  in  large  cities  where 
an  experienced  reporter  must  necessarily  be  employed.  It  is  known  that 
some  attorneys  have  secured  information  already  gleaned  by  agencies,  or  from 
those  who  have  a  file  of  reports,  and  the  merchant  who  inquires  through  two 
different  sources  receives  practically  the  report  compiled  by  one  individual. 
The  merchant  can  certainly  profit,  before  goods  are  sold,  by  ascertaining  the 
latest  known  condition  of  his  customer,  and  can  well  afford  to  pay  a  liberal 
fee  for  reliable  information,  as  he  loses  in  some  individual  instances  what 
would  repay  his  reporting  expenses  for  several  years. 

There  are,  however,  agencies  who  have  sufficient  collection  service  or  other 
legal  work  to  adequately  compensate  attorneys  for  the  service  rendered.  One 
thing  is  certain,  that  agencies  usually  sacrifice  everything  for  the  membership 
fee,  and  then  burden  the  attorneys  with  as  large  reporting  service  as  possible 
to  prove  the  efficiency  of  their  agency,  leaving  collections,  out  of  which  corres- 
pondents must  expect  their  compensation,  for  later  consideration.  Then  the 
collection  rates  adopted  by  many  reporting  agencies  are  so  low  that  attorneys 
cannot  afford  to  make  the  collection  and  divide  commissions  on  the  fee,  while 
the  delusion  held  out  to  the  merchant  is  that  the  cheap  rates  on  collections 
should  induce  them  to  sign  for  membership,  so  that  the  reports  can  be  secured 
under  the  free  order.  Take  the  situation  in  a  large  city,  where  the  attorney 
makes  many  reports.  The  expense,  at  a  moderate  estimate,  of  making  them 
would  vary  from  five  to  eight  hundred  dollars  every  year,  by  the  time  the  in- 
formation was  gathered,  references  looked  up  and  they  were  properly  written 
and  filed  away.  The  fee  paid  need  not  be  large,  but  there  are  strong  argu- 
ments, and  many  of  them,  in  favor  of  the  reports  being  paid  for  at  the  time 
the  inquiry  is  sent,  and  the  merchant  would  receive  more  beneficial  infor- 
mation, and  the  experience  of  old  and  well  informed  men  in  the  business 
who  do  not,  under  the  present  arrangement,  desire  to  represent  the  agency 
by  having  their  names  used,  declining  to  give  any  answers  to  commercial  in- 
quiries unpaid  for.  With  this  in  view,  we  believe  that  business  men  should  be 
made  to  realize  the  justness  of  having  a  small  fee  accompany  each  inquiry 
sent  out.  Yours  truly, 

E.  C.  FERGUSON. 


MERCANTILE  AGENCIES  AND  THEIR  REPORTS.  311 

§  508.    Are  Agencies  Responsible  for  their  Reports?   The 

question  of  mercantile  agencies'  liabilities  for  the  reports 
which  they  send  out,  has  been  causing  quite  a  little  comment 
of  late.  The  agencies  declare  that  they  are  not  liable  for  any 
loss  occasioned  by  following  any  report  which  they  send  out, 
but  they  have  been  sued  on  several  occasions  and  have  had  to 
pay  damages.  The  following  opinions  have  been  given  to  a 
representative  of  Geyers  Stationer  by  prominent  merchants 
who  do  not  want  their  names  mentioned  for  fear  of  antago- 
nizing the  agencies: 

"While  it  is  undeniable  that  the  mercantile  agencies  fill  a 
commercial  want,  it  is  absurd  and  unjust  that  they  should 
receive  the  immunities  they  do.  No  other  concern  or  indi- 
vidual— even  though  an  arm  of  the  law — can  do  another  a 
gross  and  unwarranted  injury  without  becoming  liable  for  the 
wrong  to  the  extent  of  his  responsibility.  The  case  referred 
to  is  about  one  of  the  least  objectionable  of  the  features  con- 
nected with  these  agencies.  To  my  mind  the  worst  is  that 
they  can  undermine  a  man's  credit,  frighten  his  creditors,  and 
even  though  he  be  solvent,  break  up  his  business,  and  force 
him  into  liquidation  without  making  themselves  legally  respon- 
sible in  the  least. 

4"  I  call  this  a  monstrous  injustice,'  said  the  merchant  with 
warmth,  'and  I  hope  and  believe  the  time  is  coming  when 
their  evil  power  will  be  broken  and  a  victim  of  their  malice 
or  carelessness  can  gain  redress  the  same  as  he  could  against 
a  railroad  or  city  through  whose  negligence  he  had  been  injured. 
The  main  trouble  is,  we  are  all  afraid  of  these  agencies,  and 
rather  than  attract  the  invidious  attention  of  these  concerns, 
prefer  to  hold  our  tongues  unless  the  evil  comes  to  our  own 
door.' 

41  Another  well  known  dealer,  when  questioned  about  the 
matter,  said:  *  It  seems  to  me  clear  that  the, agency  is  liable 
for  damages.  I  just  had  my  attention  called  to  a  decision  of 
the  Supreme  Court  of  Michigan  in  a  case  where  a  commercial 


312  COMMERCIAL  CREDITS. 

agency  received  a  notice  from  one  of  its  correspondents  that 
a  certain  firm  had  given  a  chattel  mortgage  on  their  stock  of 
goods  to  a  bank  in  the  city  where  the  agency  was  situated, 
and  advised  caution  in  dealing  with  the  firm.  The  manager 
of  the  agency  knew  there  was  no  such  bank  in  the  city  as  the 
one  named,  yet  he  sent  the  notice  to  all  his  subscribers,  and 
in  addition  advised  prompt  action  on  the  part  of  the  creditors, 
without  waiting  to  find  out  the  truth  or  falsity  of  his  corre- 
spondent's report.  The  sending  out  of  such  a  notice  is  libel, 
and  from  the  circumstances  surrounding  the  case  express 
malice  may  be  inferred,  for  the  rule  is  if  one  makes  it  his 
business  to  look  into  the  affairs  of  another  in  order  to  make 
money  out  of  his  investigations,  he  must  see  to  it  that  he 
communicates  nothing  that  is  false.' 

"A  Beekman  street  paper  man  said:  'As  I  understand  it,  no 
mercantile  agency  guarantees  its  reports,  and  you  are  sup- 
posed to  know  this  upon  becoming  a  subscriber.  A  merchant 
seldom  allows  himself  to  be  governed  solely  by  the  informa- 
tion that  they  have  to  give,  and  he  would  be  foolish  if  he  did. 
They  are  supposed  to  present  as  authentic  a  report  to  us  as 
they  themselves  can  procure,  and  if  we  accept  it  as  such  we 
do  so  at  our  own  risk.  If  suit  could  be  brought  against  mer- 
cantile agencies  for  the  mistaken  statements  they  have  offered, 
there  is  not  an  agency  that  would  continue  in  the  business. 
Every  agency  would  be  overwhelmed  with  suits.  They  would 
be  compelled  to  give  up.  As  to  whether  or  no  they  will  be. 
held  responsible  for  the  misdeeds  of  their  agents  remains  to 
be  seen.  If  I  had  a  salesman  do  wrong  toward  my  cus- 
tomers, or  in  any  way  commit  such  an  act  while  representing 
me,  I  should  feel  that  I  was  very  much  involved  in  any  trouble 
that  resulted.  If  a  mercantile  agency  should  in  any  report 
relating  to  me  make  a  false  statement  that  would  injure  my 
credit,  I  would  positively  undertake  to  gain  redress,  and  if  on 
the  other  hand  they  should  rate  me  higher  than  I  de- 


MERCANTILE  AGENCIES  AND  THEIR  REPORTS.  313 

served,  I  would  not  expect  others  to  be  influenced  by  what 
they  said.' 

"  '  I  would  not  pass  any  opinion  upon  the  case/  said  an- 
other acknowledged  leader,  'other  than  that  if  the  agent  is 
found  to  be  guilty,  I  think  the  agency  that  accepted  his  report 
and  issued  it  is  responsible.  Law  is  a  queer  thing.  My  ex- 
perience has  taught  me  that.' 

"  Said  another :  'A  man  should  not  act  upon  the  reports 
of  these  agencies  without  exercising  his  own  judgment  and 
taking  means  to  verify  them  through  reference  to  firms  with 
which  the  party  has  had  dealings.  I  have  received  four 
letters  this  morning  inquiring  as  to  the  character  and  business 
reputation  of  men  we  have  had  dealings  with.  I  am  obliged 
to  be  exceedingly  careful  in  answering  them,  for  if  I  should 
reply  that  a  man  is  good  for  so  many  thousands,  and  it  should 
turn  out  otherwise,  I  would  be  held  accountable.  These 
letters  I  answer  by  saying  how  the  man  in  question  has  met 
his  business  requirements  in  dealing  with  us.  That  relieves 
me  of  all  responsibility  in  the  matter.'  ' 


CHAPTER  IV. 


THE  ANALYSIS  OF  THE  ELEMENTS  OF  BUSINESS. 


§509.  Nature  of  business. 

1.  The  degree  of  risk. 

2.  Seasonable  goods. 

3.  Convertibility. 

4.  Terms  of  sale. 

510.  Location  of  business. 

1.  How  it  affects  the  risk. 

2.  Manufacturing  district. 

3.  Mining  region. 

4.  Farming  district. 

5.  In  large  cities. 

6.  Small  towns. 

7.  Proximity  to  the  markets. 

8.  New  states  and  territories. 

511.  Honesty. 

1.  Prevalence  of  honesty. 

2.  Honesty  means  success — 

happiness. 

3.  Looking  out  for  the  man  at 

the  other  end. 
4.'  Honesty  the  best  policy. 

5.  A   cheated    customer   sel- 

dom returns. 

6.  The  credit  system  rests  on 

honesty. 

7.  Credit  giving. 

512.  Experience. 

1.  Repetition  begets  skill. 

2.  What  is  experience? 

3.  The  farmer  grocer. 

4.  Experience  and  capital. 
5-  Credit  giving. 


§513.   Ability. 

1.  Ability  defined. 

2.  Cultivating  ability. 

3.  Jack  -  of  -  all  -  trades— spe- 

cialists. 

4.  Judging  human  nature 

5.  Some  suggestions. 

6.  Speculative  ventures. 

514.  Industry. 

1.  Necessary  to  success. 

2.  Calhoun's  example. 

3.  Vanderbilt's  start  in  life 

4.  The  worker  and  the  idler. 

5.  Credit  giving. 

515.  Character  and  habits. 

1.  Habits,  character  and  rep- 

utation. 

2.  How   character    affects   a 

credit  risk. 

3.  Same. 

4.  The  liquor  habit — sports, 

etc. 

5.  How    "shady"   characters 

get  credit. 

516.  Business  education. 

1.  Commerce  is  the  business 

of  the  world. 

2.  Importance    of    a    proper 

business  training. 

3.  Business  education  is  nec- 

essary  to    success  in   all 
the  walks  of  life. 

4.  Education  is  the  means  of 

advancement. 


THE  ELEMENTS  OF  BUSINESS. 


§517.   Punctuality. 

1.  Punctuality,     confidence 

and  the  credit  system. 

2.  Appointment  is  a  contract 

— the  man  behind  time. 

3.  Wise  use  of  time. 

4.  The  trait  was  possessed  by 

all  great  men. 

5.  Punctuality   as  applied  to 

credit  giving  —  teaching 
the  "slow  one"  to  be  on 
time. 

518.  Antecedents. 

1.  Indicative  of  business  qual- 

ifications. 

2.  How   past   failure    affects 

future  success. 

3.  Same. 

519.  Competition. 

1.  New  business  communities. 

2.  Competition  is  the   life  of 

trade. 

3.  Regulating    profits — trusts 

and  corners. 

4.  Business  secrets. 

5.  Competition  as  a  factor  in 

credit  giving. 

520.  Married  or  single. 

1.  How  social  relations  affect 

confidence —  indifference 
of  single  men. 

2.  "Are  you  married?" 

3.  Difference    in     conditions 

causes  different  ambitions. 

521.  Economy. 

1.  Economy  is   necessary  to 

success. 

2.  The  savers  and  the  spend- 

thrifts —  the  object  of 
business. 

3.  How  the   dealer    uses  the 

property  for  which  he 
owes. 

4.  Only   the   economical   are 

ultimately  successful. 

5.  Wants  increase  faster  than 

income. 


§522.  Age. 

1.  Energy  and  push  decrease 

with  age. 

2.  Probability  of  getting  our 

money  in  case  of  failure. 

3.  Extreme  youth. 

523.  Capital. 

1.  Only  money  pays  bills. 

2.  How  much  capital? 

3.  Set  up  in  business  by  rela- 

tives. 

4.  Capital  a  gift. 

5.  Capital  the  savings  of  past 

labor. 

524.  Volume  of  business  in  propor- 

tion to  capital. 

T.  Doing  business  on  a  large 
scale. 

2.  Greed  for  gain. 

3.  Panics  —  the      prominent 

commercial  crises  of  the 
last  century— the  cause  of 
panics. 

4.  Safety — credit  giving. 

525.  Assets— real  estate. 

1.  Incumbrances. 

2.  Notice  of  mortgages. 

3.  Exemptions. 

526.  Assets— accounts  and   bills  re- 

ceivable. 

1.  Shrinkage — per  cent,  real- 

ized. 

2.  Paying  interest  on  past  due 

accounts  —  past  due  ac- 
counts tie  up  capital. 

3.  Proportion  of  capital  to  ac- 

counts— turning   capital. 
Assets — personal    property  and 


527- 


528. 


stock. 

1.  Disposition  and  shrinkage. 

2.  Per  cent,  realized. 

3.  Manufacturing  plant. 
Liabilities. 

1.  Proportion  of  capital  to  lia- 

bilities— the  bargains. 

2.  Worry  —  turning   another 

corner — general  rule. 


COMMERCIAL  CREDITS. 


Chattel  mortgages. 

1.  Reporting     chattel    mort- 

gages. 

2.  Difference  between  a  judg- 

ment and  a  mortgage. 
Various  kinds  of  dealers, 
i.  Recklessness 
2    The  live-and-let-live  buyer. 

3.  The  "crank" — how  he  is 

handled. 

4.  Begging  for  credit — unso- 

licited orders. 
Doubtful  credits. 

1.  The  risk  of  doubtful  cases. 

2.  Mr.  Barling's  remarks. 


§529.  Insurance.  £533 

1.  A     good     business    man's 

motto. 

2.  It  is  the  duty  of  every  debt- 

or to  insure. 

530.  Partnerships.  534. 

1.  Good   associates — are    the 

partners  producers? 

2.  Drain  for  family  expenses. 

531.  Productive  or  non-productive. 
532    Corporation     and    joint     stock 

companies. 

1.  Advantages  of  large  corpo-        535. 

rations. 

2.  Non-liability  of  sharehold- 

ers. 

3.  Small  corporations  and  the 

reasons  why  formed. 

4.  Bona  fide  firms  and  credit 

giving. 

We  have  discussed  only  the  mercantile  agency  so  far,  but, 
as  already  hinted,  business  men  do  not  rely  entirely  on  these 
for  information.  Statements  and  reports  are  obtained  from 
various  sources,  frequently  from  the  applicant  himself.  The 
object  of  these  statements  is,  of  course,  to  gain  such  informa- 
tion as  to  enable  us  to  ascertain  whether  or  not  a  dealer  is 
entitled  to  credit,  and  if  so,  to  what  extent.  But  now  the 
question  is:  What  class  of  information  will  enable  us  to  arrive 
at  an  intelligent  and,  therefore,  a  safe  conclusion?  Now  if 
we  apply  the  rules  of  analysis  to  business,  we  find  that  it  is 
resolvable  into  certain  elements,  and  that  its  success,  and  our 
safety  as  debtors,  is  determined  very  largely  by  the  existence 
and  proper  combination  of  these  conditions  or  elements.  One 
of  these  elements  is  industry;  one  is  capital;  one,  experience; 
one,  ability;  and  so  on,  and  we  find  that  it  is  important  to 
have  information  on  all  of  these.  Some  of  these  conditions 
are  of  more  importance  than  others,  but  each  is  an  important 
factor.  Now  each  of  these  requisites  or  elements  is  susceptible 
of  individual  analysis,  and  the  rest  of  this  chapter  is  devoted 


THE  ELEMENTS  OF  BUSINESS.  317 

to  this  individual  analysis,  after  which  we  shall  apply  them  to 
reports  and  endeavor  to  show  how  a  safe  conclusion  may  be 
reached. 

§  509.  Nature  of  Business.  First.  The  degree  of  risk  is 
not  the  same  in  all  lines  of  business.  In  fact,  one  line  of  busi- 
ness may  be  much  more  hazardous  than  another.  We  may 
take  for  example  a  clothing  store  and  a  hardware  store.  Both 
are  perfectly  legitimate,  and  both  are  generally  considered 
safe.  But  in  a  clothing  store  there  are  inevitable  losses  from 
old  styles,  old  and  shelf  worn  goods,  seasonable  goods  to  be 
carried  over,  etc.,  while  losses  of  this  kind  in  a  hardware  busi- 
ness seldom  occur.  This  gives  the  hardware  trade  quite  an 
advantage  over  those  that  have  more  or  less  shrinkage.  And, 
so  far  as  the  nature  of  business  is  concerned,  we  would  call 
the  hardware  business  perfectly  safe,  and  if  in  fairly  compe- 
tent hands  it  will  do  well,  and  we  may  dismiss  the  subject  so 
far  as  this  part  of  our  report  is  concerned. 

Second.  But  different  lines  of  business  are  subject  to  dif- 
ferent kinds  of  ills,  and  these  must  be  determined  before  any 
intelligent  decision  can  be  reached.  Staple  goods  that  move 
every  day  are  necessarily  safer  than  seasonable  goods,  which 
move  only  during  their  particular  season.  A  stock  of  toys, 
picture  and  gift  books,  fireworks  and  the  like,  is  much  more 
hazardous  than  goods  which  sell  every  month  in  the  year,  and 
we  find  correspondingly  more  failures.  In  all  lines  of  trade 
there  must  be  some  seasonable  goods,  which  by  an  unpropi- 
tious  season  or  other  causes  preventing  sales  during  the  short 
time  when  such  goods  are  in  demand,  has  brought  many  a 
business  house  into  bankruptcy. 

Third.  Convertibility,  in  the  case  of  failure,  is  one  of  the 
things  which  should  b:  considered  in  connection  with  the  na- 
ture of  business.  For  instance,  a  grocer's  stock  is  easily  con- 
verted ;  but  the  city  grocer's  business  is  subject  to  so  heavy 
expense,  and  he  must  make  so  many  bad  debts,  that  it  re- 
quires good  business  management  to  succeed. 


318  COMMERCIAL  CREDITS. 

We  do  not  wish  to  discuss,  pro  and  con,  all  lines  of  busi- 
ness, but  the  credit-man  should  satisfy  himself  regarding  the 
nature  of  business  before  giving  credit  favors. 

Fourth.  Another  important  point  is  the  establishment,  by 
different  lines  of  trade,  of  its  own  terms.  These  are  for  cash 
in  one  line,  short  time  in  another,  and  long  time  in  another, 
and  these  terms  are  recognized  by  the  trade.  Deviacions  are 
seldom  made.  Thus  we  see  that  breadstuffs — articles  of  abso- 
lute necessity — are  sold  nearest  a  cash  basis.  From  this  start- 
ing point  we  find  that  as  articles  of  commerce  become  less 
necessary  to  the  community,  the  terms  of  sale  lengthen  out 
in  proportion.  Sometimes  we  find  that  •  a  cutting  down  of 
profits  will  result  in  a  proportional  shortening  of  the  terms  of 
sale.  These  rules  are  in  conformity  with  the  laws  of  com- 
merce. The  less  the  profit,  the  less  risk  that  can  be  taken, 
and  the  terms  are  shortened  accordingly.  The  shorter  the 
term  of  credit  the  less  the  risk.  A  cash  business  attracts 
men  who  can  pay  cash;  but  a  business  giving  long  time  is  pat- 
ronized by  those  who  cannot  pay,  but  who  speculate  on  future 
developments,  which  may  or  may  not  transpire.  The  longer 
the  time  the  greater  opportunity  for  future  speculation  and 
therefore  the  greater  the  risk. 

§  510.  Location  of  Business.  First.  The  location  of  the 
business  is  quite  an  important  factor  in  considering  credits; 
and  it  determines  largely  the  success  of  the  applicant  and 
therefore  the  degree  of  risk  to  be  incurred.  In  some  locali- 
ties the  merchant's  success  depends  largely  on  some  one 
industry  which  may  be  the  means  of  support  to  the  surround- 
ing community. 

Second.  In  manufacturing  localities,  the  merchant  depends 
for  patronage  almost  entirely  on  the  employes  of  the  mills  or 
factories.  He  must  also  trust  out  his  goods  from  one  pay 
day  to  the  next,  and  the  conditions  are  not  such  as  to  war- 
rant the  stability  of  the  dealer,  nor  make  his  chances  of  pay- 
ing his  debt  the  very  best.  In  the  case  of  lock-outs,  strikes 


THE  ELEMENTS  OF  BUSINESS.  319 

and  riots,  the  dealer  may  be  left  without  customers,  or  still 
be  compelled  to  carry  those  he  has  already,  perhaps,  carried 
beyond  the  point  of  safety.  During  the  recent  strike  at  Home- 
stead, Pa.,  many  of  the  business  men  failed.  These  mer- 
chants had  already  many  bad  accounts  on  their  books,  and 
when  their  customers  were  unable  to  pay,  it  was  impossible 
to  survive  and  bankruptcy  was  the  inevitable  result.  This  is 
a  fair  exemplification  of  our  position. 

Third.  In  the  mining  regions  the  trade  is  large  and  usu- 
ally profitable  while  it  lasts.  High  wages  are  paid  and  when 
money  comes  easy  it  usually  goes  easy.  People  spend  freely 
and  trade  thrives  so  long  as  the  mines  are  in  operation,  but  a 
mining  town  may  be  said  to  be  nomadic,  for  what  was  a  thriv- 
ing town  of  ten  thousand  people  a  year  ago  may  be  a  deserted 
region  today.  A  new  mine  is  opened  and  people  flock  in  and 
build  up  a  town  in  a  few  weeks;  after  a  time  the  mine  is 
closed  for  some  cause  and  the  people  depart  to  other  quarters. 
Even  the  older  mines  are  closed  occasionally,  and  in  a  few 
weeks  the  place  is  depopulated.  Mining  towns  take  on  the 
character  and  vicissitudes  of  Nijni-Novgorod,  that  great  peri- 
odical commercial  mart  of  the  inland  trade  of  Russia. 

All  these  changes  and  interruptions  play  an  important  part 
in  the  matter  of  credit  giving.  If  the  dealer  is  a  shrewd  busi- 
ness man  his  trade  is  as  safe  as  in  any  locality,  for  he  will 
push  his  business  while  it  lasts,  and  retire  before  the  crash 
comes.  And  if  he  is  on  the  alert  he  will  be  able  to  see  signs 
of  the  coming  collapse. 

Fourth.  In  a  locality  where  farming  is  the  chief  pursuit 
of  the  people,  credit  may  be  extended  almost  to  the  extent  of 
the  customer's  requests.  We  have  to  depend  on  the  custom- 
ers' ability  and  honesty  more  than  on  any  characteristics  of 
locality.  There  may  be  a  partial  failure  of  crops,  or  prices 
may  be  low  and  some  extensions  of  time  necessary,  but  a 
farming  community  is  the  most  propitious  locality  that  can  be 
selected. 


320  COMMERCIAL  CREDITS. 

Fifth.  A  large  city  surrounded  by  a  vast  section  of  coun- 
try, with  different  interests  and  industries  tributary  to  it,  and 
all  the  immense  population  engaged  in  almost  every  trade, 
profession  and  industry,  may  be  said  to  be  an  exceptionally 
favorable  location  for  the  retail  dealer.  He  need  not  depend 
for  his  patronage  on  any  one  industry,  for  he  finds  within  the 
limits  of  his  city,  demand  and  supply  for  almost  every  item  of 
merchandise  in  which  he  might  desire  to  deal. 

There  is,  however,  one  serious  drawback  to  annoy  city  deal- 
ers— and  especially  is  this  true  of  new  firms — viz.,  the  close 
competition  that  is  to  be  found  here.  If  a  dealer  can  get  a 
good  line  of  customers  at  the  start  he  is  all  right,  but  otherwise 
he  will  have  a  hard  fight. 

Sixth.  Customers  located  in  small  places  are  not  easily 
reached  for  collection  purposes  and  this  is  to  be  duly  consid- 
ered. A  town  may  have  neither  a  lawyer  nor  a  bank  and  this 
places  the  creditor  in  a  trying  position.  Many  men  would  pay 
a  draft  presented  by  a  bank,  when  they  would  take  no  notice  of 
a  request  sent  by  mail.  If  there  be  no  bank,  and  a  lawyer 
from  some  other  town  must  be  sent  to  collect  an  outstanding 
obligation,  such  expense  will  soon  eat  up  the  profits  and  much 
of  the  capital. 

Seventh.  Another  point  that  should' be  duly  considered  is 
the  proximity  of  the  dealer  to  the  market.  A  retailer  may  do 
a  large  business  on  a  comparatively  small  capital  if  he  is 
located  in  a  large  city  or  in  easy  access  to  the  markets.  He 
is  not  compelled  to  carry  a  large  stock  of  goods,  but  may  buy 
each  day  for  his  day's  sales,  and  thus  make  the  jobber  answer 
the  purpose  of  a  warehouse. 

But  it  is  entirely  different  with  the  merchant  who  is  far 
removed  from  the  markets.  He  is  required  to  carry  stock 
enough  to  last  him  from  one  to  five  or  six  months,  owing  to 
distance  and  facilities  for  travel  and  transportation.  With  a 
small  capital  the  city  dealer  can  put  in  a  large  assortment, 
which  for  the  other  would  require  a  much  larger  capital  when 


THE  ELEMENTS  OF  BUSINESS.  321 

we  consider  the  increased  quantity.  No  one  will  doubt,  that 
to  do  a  certain  amount  of  business  it  requires  the  use  of  a 
much  larger  capital  in  one  locality  than  in  another,  and  the 
risk  is  correspondingly  greater. 

Eighth.  In  newer  states  and  territories  the  law  lends  a 
great  deal  of  protection  to  the  inhabitants  in  the  matter  of 
exemptions  from  debt.  This  is  done,  presumably,  to  en- 
courage newcomers  to  settle  down  and  accumulate  property, 
and  develop  the  resources  of  the  state.  While  this  is  all 
right,  and  just,  yet  the  creditor  class  should  be  apprised  of 
the  fact  so  as  not  to  become  involved  unnecessarily.  As  an 
example  of  these  exemptions  from  execution  we  find  that  the 
laws  of  one  western  state  exempt  nearly  all  the  property 
possessed  by  a  man  even  in  good  circumstances,  and  includes 
200  acres  of  land,  in  the  county,  with  improvements  to  the 
value  of  $5,000  at  the  time  of  being  designated  as  a  liomestead. 
The  property  is  still  exempt,  notwithstanding  that  subsequent 
improvements  may  have  increased  its  value  to  a  hundred 
thousand  or  more.  Property  in  the  city  is  held  in  about  the 
same  way.  If  the  city  property  is  not  valued  at  more  than 
$5,000  when  designated  as  a  homestead,  notwithstanding 
subsequent  permanent  improvements,  it  is  exempt  from  exe- 
cution. Furniture,  implements,  tools,  books,  five  cows  and 
their  calves,  two  yoke  cattle,  two  horses,  wagon,  carriage, 
twenty  hogs,  twenty  sheep,  provisions  and  numerous  other 
articles  are  exempt.  Other  states  exempt  personal  and  mis- 
cellaneous property  to  the  value  of  $1,500  to  $2,000  of  the 
debtor's  own  choosing. 

In  cases  of  this  kind  the  creditor  cannot  look  to  the  capital 
of  a  small  business  for  his  pay,  but  must  rely  wholly  on  the 
debtor's  honesty  and  reputation  for  fair  dealing. 

£511.  Honesty.  First.  To  conform  to  the  civil  law  is 
ail  that  the  business  code  requires.  That  is,  business  is  gov- 
erned by  the  civil  law,  and  when  a  man  pays  his  obligations 
dollar  for  dollar,  we  must  call  him  honest.  As  a  general 


322  COMMERCIAL  CREDIT.-,. 

thing;  we  find  that  most  men  engaged  in  business,  from  one 
cause  or  another,  are  honest.  But  honesty  is  one  of  the  in- 
nate qualities  of  man  and  is  developed  along  with  his  other 
virtues.  And  then  honesty  finds  remuneration.  There  is 
always  reward  for  honesty  and  punishment  for  dishonesty. 
If  we  reflect  on  the  vast  amount  of  money  daily  intrusted  to 
persons  whose  earnings  barely  amount  to  a  living,  and  note 
how  few  cases  of  theft  occur  amidst  all  these  temptations,  we 
cannot  deny  that  the  honesty  of  such  men  is  most  commend- 
able. Without  honesty  there  would  be  little  credit  given, 
for  the  whole  system  of  credits  is  based  on  confidence  in  the 
honor  and  honesty  of  the  debtor. 

Second.  Although  honestly  generally  prevails,  yet  there  are 
still  too  many  instances  of  fraud  and  dishonesty  practiced  by 
the  wiry,  unscrupulous  and  selfish,  whose  whole  aim  seems  to 
be  to  get  the  almighty  dollar — honorably  if  they  can,  but  dis- 
honorably if  they  must.  There  are  tradesmen  who  adulterate 
and  cheat;  they  give  us  shoddy  for  wool,  iron  tools  for  steel, 
and  cheat  in  every  way  they  can.  But  gains  made  in  this 
way  can  never  bring  that  which  produces  happiness — a  satis- 
fied conscience.  And  many  men  who  have  been  rogues  turn 
honest  for  no  other  reason  than  to  relieve  their  conscience  of 
that  which  will  not  permit  them  to  sleep,  or  enjoy  a  moment's 
happiness. 

But  a  man  who  becomes  honest  to  relieve  his  conscience  or 
to  escape  misery  and  punishment,  or  the  one  who  practices 
honesty  because  he  believes  that  honesty  means  financial  suc- 
cess, and  the  reverse  ruin  and  failure,  cannot  be  said  to  be 
honest  in  the  broad,  true  sense.  Still  if  these  things  induce 
men  who  are  dishonest  at  heart,  or  even  indifferent  to  honesty, 
to  be  honest  in  practice,  society  will  gain  much.  If  they  can- 
not be  honest  because  it  is  right,  let  them  be  honest  because 
it  is  the  best  policy. 

Third.  In  an  address  before  the  New  York  Institute  of 
Accounts,  March  15,  1892,  Mr.  S.  S.  Packard  advised  business 


THE  ELEMENTS  OF  BUSINESS.  323 

men  to  look  out  for  the  man  at  the  other  end  of  the  bargain  ; 
to  see  to  it  that  the  other  man  did  not  get  cheated,  not  so 
much  for  the  other  man's  welfare  as  for  the  promotion  of  their 
own  life's  happiness.  There  comes  a  time  when  one  will  live 
mostly  on  the  memories  of  the  past,  and  each  one  should  so 
live  as  to  make  that  age  of  life  the  happiest  of  all.  Mr.  Pack- 
ard gave  as  an  illustration  an  account  of  the  work  of  one  of 
his  students  who  had  succeeded  beyond  expectation.  When 
Mr.  Packard  asked  him  for  the  secret  of  his  success  he  an- 
swered :  "  Nothing  is  plainer,  nothing  easier.  You  may  not 
remember,  but  I  do,  the  little  lecture  that  you  used  to  give  us 
boys  concerning  our  future  work.  On  one  occasion  you  made 
a  remarkable  statement,  which  at  the  time  I  could  not  quite 
comprehend,  simply  because  it  was  the  reversal  of  all  the  the- 
ories which  had  come  to  me  from  other  sources.  You  said  : 
'  One  thing,  boys,  you  must  remember,  that  in  the  matter  of  a 
bargain  the  question  is  not  whether  you  shall  be  cheated,  but 
whether  the  other  fnan  shall  be.  In  short,'  you  said,  *  make 
it  the  rule  of  your  business  life  to  look  out  for  the  man  at  the 
other  end  of  the  bargain.' 

4<  It  was  a  new  doctrine  to  me,  but  I  said  to  myself,  '  If  I 
ever  get  into  business  I  will  try  to  carry  out  that  theory';  and, 
strange  as  it  may  seem  to  you,  I  have  done  so  as  well  as  I 
could  during  my  whole  business  career. 

"  At  first  it  was  a  sort  of  sentiment,  but  after  that  it  was 
purely  business,  for  I  discovered  a  meaning  in  it  which  I  very 
much  doubt  if  you  yourself  had  fully  comprehended.  I 
started  in  a  special  line  of  trade,  and  developed  an  article  of 
common  use  to  such  an  extent  that  I  could  undersell  most 
dealers,  and  soon  made  it  to  the  interest  of  large  concerns  to 
purchase  directly  of  me.  My  first  effort  to  carry  out  your  rule 
was  to  acquaint  myself  with  the  selling  market  of  my  customer, 
and  to  recommend  to  him  only  those  goods  that  he  could 
readily  dispose  of,  so  that  he  could  get  quick  returns  and  come 
back  to  me  for  more.  Beyond  this,  by  special  inquiry,  I  as- 


324  COMMERCIAL  CREDITS. 

certained  the  peculiar  wants  of  particular  neighborhoods  and 
different  localities,  and  aimed  to  supply  these  wants. 

"Again,  I  made  it  a  rule  in  my  business  to  take  back  goods 
that  were  unsalable,  and  supply  their  place  with  salable  goods. 
The  result  has  been  that  during  the  fifteen  years  in  which  I 
have  been  engaged  in  business  I  have  never  lost  a  customer, 
and  nearly  all  my  customers  trust  greatly  to  my  judgment  as 
to  the  quality  of  wares  they  had  better  purchase.  I  have 
been  unusually  prosperous  in  business,  and  many  persons  have 
wondered  at  my  success,  but  I  can  say  to  you  honestly  that  my 
success  has  come  largely  from  adopting  your  principle  of 
'looking  out  for  the  other  man.'" 

Fourth.  Shakespeare  makes  Hamlet  say  :  "Ay,  sir,  to  be 
honest,  as  the  world  goes,  is  to  be  one  man  picked  out  of  two 
thousand."  He,  of  course,  had  reference  to  strict  moral 
honesty.  But  that  business  honesty  is  at  such  a  discount 
cannot  be  considered  for  a  moment,  even  by  those  who  seem 
to  imagine  that  the  world  is  growing  more  wicked  every  day, 
and  that  we  are  fast  approaching  destruction.  Do  you  believe 
it  ?  Who  are  the  rogues  ?  They  must  be  you  and  your  neigh- 
bors. 

No,  business  honesty  is  at  a  high  premium,  and  it  is  the 
greater  wonder  that  there  is  so  much  honesty  in  the  world  as 
there  is.  We  say  that  "honesty  is  the  best  policy,"  and  we 
mean  that  it  brings  wealth  and  happiness.  Even  the  dishon- 
est man  believes  it,  and  has  probably  been  brought  to  the  con- 
clusion by  observation  and  comparison.  The  old  merchant's 
farewell  advice  to  the  young  man  was  timely  :  "  My  son,  let 
me  repeat  to  you  that  honesty  is  the  best  policy.  I  have  tried 
both  ways,  and  I  know."  But,  as  Mr.  Packard  said,  "hon- 
esty is  not  only  the  best  policy,  but  the  only  policy."  Men 
should  do  right  because  it  is  right,  not  for  policy's  sake. 

FiftJi.  A  merchant  who  has  his  mark  in  the  world  yet  to 
make,  cannot  by  any  force  of  reasoning,  afford  to  be  dishon- 
est. A  customer  who  is  deceived  in  an  article  purchased,  be 


THE  ELEMENTS  UK  BUSINESS.  325 

its  value  ever  so  little,  will  rarely  come  again.  It  is  not  so 
much  the  value  lost,  as  it  is  the  idea  of  being  cheated  by 
willful  misrepresentation;  a  man  who  misrepresents  one  arti- 
cle cannot  be  depended  upon  to  act  fairly  in  any  trade.  If 
men  could  engage  in  business  today  and  by  a  system  of  dis- 
honesty retire  with  a  competency  tomorrow,  no  doubt  many 
who  are  trying  to  get  an  honest  livelihood  by  hard  struggling 
would  be  too  weak  to  withstand  the  temptation.  But  men 
cannot  do  this,  and  after  a  man  has  through  honest  means, 
attained  a  competency,  there  is  no  longer  any  motive  for  dis- 
honest acts,  for  now  he  values  the  good  opinion  of  his  neigh- 
bor as  much  as  he  does  the  money  of  this  same  man. 

"All  good  men  love  the  approval  of  the  good,  and  all  bad 
men  are  held  in  check  in  fear  of  the  good  man's  reproach."1 

This  principle  holds  out  the  argument  that  it  is  natural  for 
men  to  lean  toward  honesty  and  uprightness  and  not  toward 
knavery. 

Sixth.  " Integrity," says  Earling,  "is  the  rock  on  which  the 
vast  commercial  interests  of  the  world  are  resting  for  their 
foundation.  Annihilate  that,  and  in  the  train  of  its  destruc- 
tion will  follow  civilization  and  all  the  benefits  arising  out  of 
it.  Without  faith  and  confidence  in  each  other's  honesty 
there  can  be  no  credit,  and  without  credit  very  little  business. 

"To  be  honest,  to  do  your  duty  toward  yourself  and  your 
neighbor,  is  not  a  specially  meritorious  act.  An  obligation  or 
a  duty  is  discharged  with  its  conscientious  performance,  and 
that  simply  ends  it  as  it  ought  to  end.  But  the  failure  to  per- 
form the  duty,  the  act  of  being  dishonest,  for  this  there  can  be 
no  excuse  either  on  moral  or  business  grounds." 

Seventh.  If  a  man  asking  for  credit  favors  cannot  produce 
a  proper  showing  for  honesty  and  fair  dealing  with  his  cus- 
tomers, let  him  seek  elsewhere  for  credit.  If  he  be  not  honest 
with  his  own  customers,  on  whom  he  depends  for  patronage, 
he  cannot  be  expected  to  care  much  for  his  creditors.  There 

a  Lyman  Gage,  of  Chicago. 


326  COMMERCIAL  CREDITS. 

is  no  assurance  that  a  dishonest  man  will  ultimately  succeed, 
and  the  risk  is  great  from  this  point  of  view.  You  cannot 
afford  to  trust  him.  Besides  there  is  quite  enough  risk  in 
selling  on  promise  of  future  payment,  without  incurring  unnec- 
essary or  extra  hazards. 

§512.  Experience.  First.  "  Repetition  begets  skill."  It 
is  by  doing  a  thing  over  and  over  again  that  we  learn  to  do  it 
well.  Familiarity  may  breed  contempt,  and  we  may  look  on 
life  as  a  drudgery,  but  skill  comes  from  familiarity  and  even 
drudgery.  After  a  young  man  has  accepted,  with  all  its 
honors,  the  presidency  of  a  country  lyceum  club,  and  prop- 
erly presided  over  several  of  its  meetings,  he  is  not  competent 
to  preside  over  the  House  of  Representatives.  Nor  is  a  young 
person  who  takes  a  course  in  bookkeeping,  under  the  best 
instructor,  in  any  sense  a  practical  bookkeeper,  much  less  an 
accountant.  It  takes  skill  to  do  skilled  work,  and  skill  is  the 
result  of  doing  a  thing  many  times,  until  it  becomes  familiar. 
A  man  does  a  thing  over  and  over  for  ten  years  and  we  say  "  he 
has  experience,  he  is  an  experienced  workman."  Men  build 
ships,  or  houses,  or  they  manufacture  cloth,  or  construct  rail- 
roads, or  sell  goods,  or  keep  accounts,  all  their  lives,  and  they 
command  good  pay  because  they  do  good  work.  Experience 
has  come  to  be  one  of  the  necessaries  to  success  in  any  call- 
ing, and  it  is  always  a  matter  of  speculation  how  an  inexperi- 
enced man  will  come  out  in  a  new  undertaking. 

Second.  "  The  aggregate  knowledge,"  says  Mr.  Earling,  "  that 
has  been  acquired  by  personal  observation  and  actual  trials, 
is  called  experience.  The  kind  of  experience  we  are  looking 
for  is  of  a  specific  character  and  confined  to  some  one  branch 
of  business,  and  there  is  no  department  of  trade  to-day  that 
does  not  offer  sufficient  scope  to  monopolize  all  a  man's  time 
and  attention.  The  more  difficult  any  business  or  profession 
is  to  learn,  the  fewer  will  be  the  competitors  to  invade  it,  and 
herein  lies  our  compensation  for  its  mastery." 

There  are  many  phases  to  every  line  of  business,  and  that 


THE  ELEMENTS  OF  BUSINESS.  327 

knowledge  which  comes  by  "actual  trials"  enables  us  to  fore- 
see and  provide  for  the  ups  and  downs  of  trade;  we  are  able 
to  control  circumstances,  and  thereby  the  safety  of  our  en- 
terprise. This  the  inexperienced  cannot  do,  and  failure  often 
results  before  the  requisite  knowledge  is  obtained. 

Third.  He  was  an  old  farmer,  and  had,  by  hard  work  and 
attention  to  details,  accumulated  quite  a  little  sum  of  money. 
He  concluded  that  the  remaining  days  of  his  life  should  be 
spent  in  comparative  ease,  and  so  he  rented  his  farm  for  the 
season,  and,  taking  his  family,  he  came  to  Des  Moines.  Here 
he  invested  nearly  the  whole  of  his  ready  money — which  to 
him  represented  the  net  profit  of  years  of  hard  labor — in  a 
stock  of  groceries.  In  a  few  days  he  had  a  room  rented  and 
opened  for  business.  I  passed  his  place  several  times  every 
day,  and  soon  concluded  that  he  had  few  customers  and  that 
his  trade  did  not  seem  to  increase.  One  day  I  thought,  to 
help  the  old  man  out,  I  would  make  a  few  purchases.  He 
was  exceedingly  awkward  in  doing  up  the  simplest  kind  of  a 
package,  and  when  he  came  to  wrap  up  some  butter  for  me 
he  smeared  and  mussed  it  up  so  with  his  fingers  and  a  dirty 
butter  knife  that  I  had  no  relish  for  butter  for  some  days.  I 
did  not  help  the  old  man  out  again  ;  others  must  have  been 
no  better  pleased,  for  after  about  nine  months  his  "  farm 
money"  had  disappeared,  and,  selling  what  stock  he  had  left 
for  a  mere  trifle,  he  moved  back  on  the  farm  to  pursue  a  call- 
ing in  which  he  had  already  accumulated  a  wealth  of  experi- 
ence. 

Such  men  can  ill  be  spared  from  the  farm,  where  they  are 
able  to  succeed,  but  as  merchants  they  can  be  spared,  and 
usually  are  after  a  short  but  costly  trial.  The  creditor  calcu- 
lates on  how  long  the  money  will  last,  and  gives  credit 
accordingly. 

FourtJi.  A  man  possessed  of  capital  and  experience  is  able 
to  push  along,  mounting  every  obstacle,  warding  off  every 
danger,  and  consequently  enjoying  the  greatest  possible  sue- 


328  COMMERCIAL  CREDITS. 

cess.  By  his  capital  he  is  able  to  increase  and  strengthen  his 
enterprise,  and  by  his  experience  he  commands  the  respect 
and  patronage  of  the  people.  No  exigency  disheartens  him, 
for  he  has  traveled  the  same  road  many  times  before  and 
knows  where  every  pit-fall  and  danger  lies,  and  is  able  to  avoid 
them  with  perfect  composure. 

If  he  possessed  the  experience  alone,  he  would  be  able  to 
command  capital,  for  those  who  have  capital  must  depend 
for  its  productiveness  on  those  who  possess  experience.  Ex- 
perienced men  can  always  command  capital,  and  millions  of 
dollars  are  intrusted  to  men  whose  experience  in  managing 
large  corporations  and  enterprises  is  the  only  guarantee  that 
the  money  will  be  properly  invested.  Capital  without  experi- 
ence could  never  produce  the  great  enterprises  of  this  country, 
and  we  owe  as  much  to  one  as  to  the  other. 

Fifth.  In  extending  credit  accommodations  the  matter  of 
experience  should  have  as  much  weight  in  the  consideration 
as  any  other  element.  In  this  day  and  age  of  the  world,  when 
men  are  specialists  and  competition  is  close,  the  inexperienced 
have  but  few  chances  of  success. 

§513.  Ability.  First.  Lever  says:  "No  matter  how 
skillful  a  man  plays  the  game  of  life,  there  is  but  one  test  of 
his  ability — did  he  win  ?"  Ability  is  the  power  which  we  pos- 
sess of  accomplishing  what  we  undertake.  It  is  the  sum  total 
of  the  qualities  that  go  to  make  up  a  successful  business 
career.  It  is  the  power  to  know  how  to  judge  of  people  and 
things  by  what  we  ourselves  are;  or  rather,  the  power  to  ap- 
ply what  we  know  to  practical  purposes. 

Second.  A  man  may  have  a  special  liking  for  one  calling 
and  by  cultivation  may  gain  that  ability  which  brings  ultimate 
success — for  a  man's  ability  is  judged,  not  by  beginnings,  but 
by  accomplishments.  And  ability  is  the  result  of  proper 
training.  But  men  enter  business  without  any  preparatory 
education,  and  not  knowing  whether  they  are  fitted  for  such 
work  or  not.  It  is  no  wonder  that  so  many  of  our  merchants 


THE  ELEMENTS  OF  BUSINESS.  329 

fail  when  business  is  in  the  hands  of  incompetent  men,  who 
seem  to  think  that  any  one  can  be  a  merchant  withont  any 
qualifications  or  training.  Farmers,  nor  teachers,  nor  lawyers 
would  make  good  merchants;  nor  would  merchants  or  manu- 
facturers make  good  doctors  or  editors.  Skill  does  not  come  by 
birth,  nor  is  it  acquired  in  a  few  weeks.  A  man  cannot  succeed 
in  anything  if  he  changes  vocations  every  six  months.  He  must 
select  his  work  and  apply  his  life  to  its  furtherance,  or  use  this 
work  as  a  stepping  stone  to  something  higher. 

Third.  A  "  jack-of-all-trades  and  master  of  none,"  is  the 
one  who  not  only  changes  his  calling  often,  but  tries  to  mas- 
ter many  callings,  and  ply  them  all  at  the  same  time.  I  knew 
one.  He  was  a  carpenter,  a  wagon  maker,  a  painter,  an  en- 
gineer, a  farmer,  an  elocutionist.  He  could  clean  a  watch 
and  put  it  together  again  and  it  would  still  keep  time.  He  had 
a  fairly  good  violin  which  he  made  without  help,  and  on  which 
he  performed  with  a  fair  degree  of  skill.  He  could  play  on 
almost  any  kind  of  a  musical  instrument — and  if  there  was 
anything  which  he  could  not  do,  I  never  found  it  out.  But 
he  could  do  nothing  exceptionally  well;  his  ability  and  energy, 
if  they  had  been  directed  in  some  certain  line,  would  have 
produced  unusual  success,  but  doing  everything,  he  did  noth- 
ing, and  remained  a  poor  man.  He  is  dead  now  and  I 
forgive  him. 

To  choose  a  calling  is  one  of  the  most  important  steps  of 
a  young  man's  life.  It  has  the  greatest  bearing  on  his  future 
destiny.  And  a  good  rule  for  a  young  man  to  remember  is 
that  a  man  does  what  he  can,  not  what  he  would -like  to  do. 

Fourth.  A  man's  ability  is  severely  tested  in  choosing  men 
to  assist  him  in  his  work.  To  be  able  to  judge  of  men  and 
character,  and  surround  oneself  with  the  proper  kind  of  em- 
ployes and  partners,  has  been  a  great  help  to  many  men  who 
have  materially  aided  in  advancing  commerce  and  trade,  and 
at  the  same  time  accumulated  a  competency.  Any  one  may, 
by  study  and  comparison,  acquire  the  trait  of  judging  human 


330  COMMERCIAL  CREDITS. 

nature.  And  this  quality  is  as  essential  to  the  business  man 
as  to  the  teacher.  No  two  men  are  alike,  and  they  cannot  be 
approached  in  the  same  way.  Things  may  be  said  to  one 
that  would  not  be  tolerated  by  another,  and  the  man  who 
does  not  know  just  how  to  approach  such  men,  works  at  a 
great  disadvantage. 

Fifth.  Ability  to  judge  of  the  value  of  goods  is  essential 
to  a  successful  merchant.  Profits  on  sales  depend  very  largely 
on  the  ability  shown  in  making  purchases.  Judicious  buying 
is  necessary  to  success,  and  this  results  from  a  thorough  knowl- 
edge of  values. 

A  merchant  should  study  the  needs  of  his  customers  and 
buy  accordingly. 

He  should  have  an  abundance  of  good  nature  and  treat  his 
customers  as  if  they  were  as  good — or  better — than  he.  And 
above  all,  he  should  treat  all  alike.  The  poor  receive  as 
much  kindly  attention  at  the  hands  of  the  good  merchant  as 
the  rich.  Why  not  ?  Their  money  is  as  good  as  the  rich 
man's,  and  the  profit  is  quite  as  great,  besides  there  are  more 
poor  than  rich  men. 

He  should  have  the  same  price  for  all  customers.  If  he 
asks  one  price  and  accepts  another,  his  patrons  will  never 
know  when  they  are  fairly  dealt  with,  and  so  will  buy  with 
great  caution. 

He  should  be  quick  to  discriminate.  The  greatest  questions 
of  life  are  to  be  decided  on  the  impulse  of  the  moment.  It  is 
only  the  minor  affairs  which  give  us  time  to  contemplate. 

He  should  save  a  part  of  his  profits.  Reverses  may  come 
and  he  must  have  some  accumulations  to  draw  on.  Old  age 
is  coming  on  and  he  cannot  work  until  the  end  comes. 

Another  trait  which  a  good  merchant  must  have  is  the 
willingness  to  attend  to  details.  Life  is  made  up  of  little 
things,  and  he  who  neglects  them,  neglects  everything. 
"  What  use  is  a  child  ?  It  may  become  a  man."  So  little 
things  grow  and  help  make  up  the  sum  total  of  success. 


THE  ELEMENTS  OF  BUSINESS.  331 

Sixth.  A  dealer  must  ply  his  business  with  all  his  energies 
and  let  other  people  attend  to  outside  matters.  If  he  accu- 
mulates more  money  than  he  needs  for  immediate  use,  he 
should  place  it  in  some  safe  investment.  He  will  have  many 
chances  to  invest  it  in  speculative  ventures  promising  great 
rewards  for  small  investments,  but  he  must  know  that  all 
must  render  an  equivalent  for  the  things  gotten  in  this  world, 
and  that  the  most  glittering  money-making  schemes  are 
fraudulent.  When  a  man  says  he  will  give  you  $5  for  $i,  he 
is  going  to  cheat  you  in  some  way  even  out  of  the  dollar. 

A  merchant  should  not  get  into  financial  complications  that 
his  business  will  not  justify.  All  his  obligations  should  be 
based  on  certainty,  so  far  at  least  as  a  prudent  man  may 
judge. 

§  514.  Industry.  First.  Mr.  Earling  aptly  says:  "A 
man  may  be  possessed  of  good  ability  and  otherwise  excellent 
qualities,  but  if  he  lacks  application  and  industry  his  chances  of 
success  will  be  very  precarious,  and  this  holds  good,  especially 
in  mercantile  life.  In  no  occupation  are  indefatigable  energy 
and  close  attention  so  indispensable  to  success  as  that  of  the 
merchant,  and  if  he  is  not  willing,  in  this  age  of  competition 
and  push,  to  devote  himself  assiduously  and  energetically  to 
his  calling,  he  can  hardly  hope  to  accomplish  great  results." 

To  be  a  successful  merchant  means  more  than  to  buy  a 
stock  of  goods  and  rent  a  store  room.  It  is  not  a  life  of  ease. 
It  means  hard  work  from  morning  until  night,  every  day  in 
the  year,  and  while  his  assistants  do  a  great  deal  of  the  work 
yet  he  must  be  present  during  business  hours,  and  personally 
superintend  the  work.  If  he  is  irregular  in  his  work  and  lets 
important  demands  go  without  attention,  he  may  expect  to  see 
his  help  follow  his  own  example.  If  the  head  of  the  business 
is  negligent  and  inattentive,  the  clerks  and  assistants  will  not 
render  that  service  which  is  necessary  to  success.  Bad  quali- 
ties are  contagious,  so  are  good  ones,  but  in  a  less  degree. 
The  proprietor  must  give  his  personal  attention  to  the  busi- 


332  COMMERCIAL  CREDITS. 

ness  to  keep  up  the  proper  spirit,  and  to  infuse  life  and  energy 
into  every  department  of  the  work,  and  thus  secure  the  great- 
est amount  of  well  directed  effort  on  the  part  of  every  one 
connected  with  the  establishment. 

Second.  Without  application,  industry  and  unrequiting 
toil  there  can  be  no  success.  When  we  review  the  lives  of  all 
the  men  who  have  won  fame  or  fortune  we  find,  without  an 
exception,  that  they  were  all  workers.  Not  merely  that  they 
worked  along  in  a  cursory  way,  but  that  they  were  men  whose 
lives  were  spent  in  never  ceasing  toil.  Work  was  the  motto 
of  their  lives.  It  is  the  solution  to  the  great  problem  of  suc- 
cess. Application !  When  John  C.  Calhoun  was  ridiculed  by 
his  fellow  students,  at  Yale,  for  his  intense  application  to  his 
studies,  he  replied,  amidst  loud  laughter,  "  I  am  forced  to 
make  the  most  of  my  time  that  I  may  acquit  myself  creditably 
when  in  Congress."  When  the  laughing  had  ceased  he  added, 
"I  assure  you,  if  I  were  not  satisfied  of  my  ability  to  be  in 
Congress  in  three  years,  I  would  at  once  leave  college."  And 
he  was  not  disappointed.  Calhoun  knew  that  it  was  only  by 
constant  application  and  industry  that  he  could  reach  the 
goal  of  his  ambition. 

Third.  As  an  example  of  the  satisfactory  results  of  industry 
we  have  but  to  take  the  life  of  any  great  man.  Could  Elaine 
have  reached  the  eminence  to  which  he  has  ascended  if  he  had 
idled  his  life  away,  or  even  worked  with  ordinary  application? 
Would  Pullman,  starting  at  the  age  of  eighteen  in  a  small 
furniture  store  with  a  still  smaller  salary,  have  amassed  such  a 
fortune  had  it  not  been  for  his  untiring  industry?  If  you  know 
a  successful  man,  you  know  a  worker.  No  idle  man  can  reach 
success.  Success  is  at  the  top  and  those  who  climb  for  it 
must  never  stop  on  the  way,  lest  they  slip  back  again  so  that 
others  get  ahead  of  them. 

Cornelius  Vanderbilt  started  on  his  business  life  by  ferry- 
ing across  the  Hudson  river  between  New  York  and  Jersey 
City.  His  outfit  consisted  of  a  small  row  boat,  but  he  plied 


THE  ELEMENTS  OF  BUSINESS.  333 

his  vocation  with  an  energy  that  at  once  won  for  him  a  large 
patronage.  He  began  before  day  and  worked  till  after  dark 
and  often  all  night.  He  made  out  a  scheduled  time  card, 
which  he  posted  near  his  landing,  and  he  was  always  on  time, 
and  no  matter  what  the  condition  of  the  weather  his  patrcns 
knew  that  Vanderbilt  would  be  there.  He  soon  had  the  cream 
of  the  boating  business,  though  he  had  more  than  forty  com- 
petitors. He  had  no  vices,  and  saved  in  a  few  years  enough 
money  to  buy  a  larger  boat  and  go  into  business  on  a  much 
larger  scale.  But  he  had  also  gained  two  other  things  which 
he  never  relinquished — a  perfect  knowledge  of  his  business 
and  habits  of  industry  and  self-control.  By  his  habits  of 
economy,  his  indefatigable  industry  and  his  energy,  he  soon 
owned  several  vessels,  one  of  which  he  equipped  to  sail  be- 
tween New  York  and  Philadelphia.  He  then  took  to  railroad- 
ing, and  his  successes  are  known  to  every  school  boy. 

To  cite  all  the  notable  instances  of  success  resulting  from 
application  and  industry,  we  would  have  to  name  all  the  men 
who  have  achieved  distinction  in  the  various  walks  of  life,— 
in  art,  literature,  science,  corimerce,  and  the  professions. 

Fourth.  Our  best  education  is  that  which  we  give  ourselves, 
and  this  is  obtained  through  industry.  A  steady  application 
to  work  is  the  best  training  that  a  young  person  can  have. 
Industry  is -the  means  of  happiness  and  enjoyment.  But  who 
ever  heard  of  a  happy  idler?  The  idle  wander  aimlessly 
through  life  and  leave  no  trace  of  their  existence;  but  the  in- 
dustrious stamp  their  character  upon  their  age,  and  their 
influence  for  good  extends  to  their  posterity.  Sam  Smiles 
says:  "  Labor  is  the  best  test  of  the  energies  of  men,  and 
furnishes  an  admirable  training  for  practical  wisdom." 

In  a  word,  labor  is  the  .only  means  by  which  education,  sci- 
ence, art  or  business  can  be  attained.  When  David  Porter, 
who  by  frugality,  industry  and  application  to  business,  had 
accumulated  a  fortune, was  asked  how  he  had  succeeded,  he  an- 
swered, " By  never  having  an  idle  hour  or  an  idle  guinea." 
That  is  the  secret. 


334  COMMERCIAL  CREDITS. 

The  fact  that  a  man  works  hard  does  not  necessarily  mean 
that  he  is  industrious.  He  may  work  for  bread  and  butter 
because  he  cannot  get  it  any  other  way  But  a  capacity  and 
willingness  to  work,  combined  with  the  quality  of  application, 
is  entirely  different.  It  is  directed  toward  the  accomplish- 
ment of  a  purpose  in  life,  and  it  looks  to  future  benefits  as 
well  as  present  enjoyments.  "Application  means  stick-to-it- 
iveness,  and  trusting  to  the  law  of  compensation  for  your 
reward." 

Fifth.  " Reports  say  'attentive  to  business'  or  'not  atten- 
tive/ with  more  or  less  details  on  the  subject,  as  the  case  may 
be.  Inattention  to  one's  business  is  inexcusable,  and  is  suffi- 
cient cause  for  lack  of  confidence — in  fact,  no  man  is  entitled 
tu  credit  who  neglects  his  own  business." 

The  credit  man  should  make  a  careful  estimate  regarding 
an  applicant's  qualities  for  industry  and  attention  to  business 
before  extending  many,  or  any,  credit  accommodations.  No 
one,  who  may  have  money  involved,  can  afford  to  ignore  so 
important  a  factor. 

§  5 1 5.  Character  and  Habits.  First.  The  whole  of  man's 
character  may  be  said  to  be  included  in  the  term  "  habits"  ;  and 
it  may  be  strengthened  and  supported  by  a  proper  cultivation 
of  good  habits.  It  has  been  said  that  man  is  a  bundle  of 
habits,  and  that  habit  is  second  nature.  And  Metastasio,  the 
poet,  was  so  convinced  of  the  power  of  repetition  that  he  said: 
"All  is  habit  in  mankind,  even  virtue  itself." 

Character  is  that  innate,  that  latent  power,  which  makes 
our  talents  trusted.  It  is  human  nature  in  its  best  form.  We 
may  admire  a  man  of  learning  but  we  trust  only  those  with 
character.  Character  creates  confidence  in  men  in  all  the 
walks  of  life.  There  is  a  vast  difference  between  character 
and  reputation.  Character  is  what  the  man  really  is,  but 
reputation  is  what  the  world  believes  him  to  be.  Sometimes 
we  must -accept  reputation  for  character,  for  while  some  men 
show  their  character  by  their  every  act,  deed  and  look,  yet 


THE  ELEMENTS  OF  BUSINESS.  335 

others  do  not,  The  line  of  demarcation  is  finely  drawn  and 
not  easily  determined.  It  is  hard  to  say  where  good  character 
leaves  off  and  bad  character  begins.  So  many  times  we  must 
accept  reputation  and  run  the  chances  of  its  reliability.  A 
man's  habits  do  not  always  indicate  his  character — in  fact  he 
may  possess  many  good  habits  and  still  be,  at  heart,  a  veritable 
scoundrel. 

Second.  It  an  applicant  for  credit  cannot  produce  a  good 
showing  as  to  character  and  fair  dealing,  we  have  no  use  for 
him,  and  cannot  afford  to  accommodate  him  with  credit  favors. 
We  could  afford  to  trust  a  man  possessed  of  good  character 
and  habits,  though  he  be  without  capital,  and  still  feel  com- 
paratively safe;  but  a  man  with  capital,  and  even  with  ability, 
but  without  character  and  integrity,  would  be  a  person  that 
few  would  care  to  trust. 

The  man  must  have  an  established  record  for  honesty  and 
fair  dealing  before  he  becomes  a  safe  risk.  Though  by  this 
we  do  not  mean  that  he  must  be  perfect  in  every  way,  for  a 
man  may  have  a  proper  record  for  fair  dealing  and  still 
possess  some  very  objectionable  habits.  We  do  not  expect 
to  find  perfection,  and  many  personal  shortcomings  and  small 
vices  must  be  overlooked  from  a  business  point  of  view;  but 
the  general  reputation  must  be  good.  And  especially  can  we 
overlook  a  few  shortcomings  in  a  man  who  has  been  estab- 
lished in  trade  for  a  long  period,  though  closer  attention  should 
be  given  to  this  trait  in  a  new  comer.  But  in  any  case  where 
a  credit  or  trust  is  involved  we  cannot  afford  to  ignore  so  im- 
portant an  element  as  that  of  character  and  habits. 

Third.  "  In  extending  credit,"  says  Earling,  "the  character 
and  habits  of  the  party  asking  it  should  be  searchinglyin - 
quired  into  and  all  the  facts  ascertained.  Our  security  as 
creditors  depends  on  these  factors  more  largely  than  on  any 
other  two.  No  applicant  for  credit  is  entitled  to  it  unless  his 
record  for  both  honesty  and  sobriety  is  above  reproach.  Tlu 
men  of  moderate  ability  and  good  character  and  habits  are 


336  COMMERCIAL  CREDITS. 

the  standbys  in  trade,  but  reversing  this  order,  we  are  liable  to 
reverse  our  fortunes  if  we  make  them  our  debtors." 

Fourth.  Experience  teaches  us  that  men  addicted  to  the 
liquor  habit  are'  undesirable  debtors.  The  habit  of  itself  is 
not  alone  to  blame,  but  the  loss  of  time,  inattention  to  busi- 
ness, and  the  unwarranted  expense  which  is  the  direct  result 
of  such  a  habit,  is  the  feature  to  which  the  credit  man  looks. 

For  the  same  resultant  reason,  a  man  who  is  a  constant 
attendant  at  base  ball  games,  races,  and  the  various  sports 
which  may  offer  amusement  to  the  public,  is  usually  not  a 
good  credit  risk.  To  succeed  in  business  is  to  sacrifice  pleas- 
ure, and  especially  that  pleasure  which  comes  from  outside 
amusements.  "  Business  before  pleasure  "  has  been  said  so 
often  that  few  know  its  meaning.  We  hear  the  words,  and 
that  is  all — there  is  no  comprehension. 

Fifth.  "  It  is  supposable  that  no  sales  are  ever  made  with- 
out expectations  of  payment,  and  yet  we  find  that  men  of  all 
shades  of  character,  and  even  'shady  characters,'  constantly 
figure  in  the  reported  failures  of  the  country.  That  somebody 
has  taken  stock  in  them  is  self-evident.  If  they  did  not  owe 
anybody  they  would  have  no  need  or  inducement  to  fail.  The 
fact  that  they  owe  is  prima  facie  evidence  that  their  credit 
was  good  in  some  quarter,  at  least.  The  assumption  can 
hardly  hold  good  that  the  creditors  of  dubious  characters  in 
trade  were  cognizant  of  the  fact  of  such  dubiousness  when 
selling  to  them.  We  must,  therefore,  charge  this  indiscrim- 
inate and  lavish  dispensation  of  credit,  not  to  a  knowledge  of 
the  facts,  but  to  negligence  in  obtaining  them.  And  this  is 
where  the  weakness  of  most  creditors  lies.  The  time  to  in- 
quire into  character  and  habits,  and  other  things  necessary  to 
be  known,  is  when  you  make  the  credit,  and  if  there  is  any 
doubt,  take  the  benefit  of  it  yourself." 

§516.  Business  Education.  First.  In  this  country  a  great 
deal  of  time  and  money  is  spent  on  an  education  that  is  to 
train  a  man  for  the  calling  of  law,  medicine,  or  journalism: 


THE  ELEMENTS  OF  BUSINESS  337 

while  but  little  attention  is  given  to  the  training  for  commerce. 
When  we  consider  how  much  time  is  devoted  to  other  callings 
to  enable  a  young  man  to  do  active,  intelligent  work,  and  how 
little  is  supposed  to  be  necessary  to  a  proper  training  for  busi- 
ness, we  are  forced  to  believe  that  there  is  something  wrong 
with  our  appreciation  of  proper  discipline. 

Commerce  is  the  business  of  the  world,  and  there  are  more 
persons  engaged  in  it  than  in  all  other  callings  combined. 
This  is  a  significant  fact.  Why  should  we  slight  a  proper 
training  in  a  calling  which  furnishes  a  living  to  so  great  a 
multitude,  and  expend  our  school  days  in  the  pursuit  of  knowl- 
edge that  can  never  be  used  in  the  affairs  of  life  ? 

Second.  There  are  young  men  in  the  world  who  really  ex- 
pect, without  experience  or  practical  preparation,  to  cope  with 
their  more  intelligent  neighbor  for  that  much  coveted  jewel — 
success.  But  they  will  fail.  Soldiers,  taken  in  miscellaneous 
confusion  from  the  plow,  the  loom,  the  workshop,  and  the 
schoolroom,  cannot  hope  to  battle  in  even  advantage  with 
veteran  soldiers,  whose  lives  have  been  devoted  to  military 
tactics  and  drill.  Nor  can  men  without  preparation  fight 
battles  in  the  struggle  of  life  successfully  with  those  whose 
business  training  has  fitted  them  for  the  duties  which  they  are 
to  perform.  He  who  succeeds  in  the  commercial  race  of  to- 
day must  be  thoroughly  trained  for  his  work.  He  must  think 
and  act  quickly,  and  must  know  not  alone  what  is  to  be  done, 
but  how  to  do  it.  The  business  man  has  a  right  to  expect 
that  all  who  profess  to  be  business  men  and  wish  to  transact 
business  with  him,  are  perfectly  familiar  with  all  the  laws, 
customs,  usages  and  practices  that  govern  the  transaction  of 
business.  It  is  no  part  of  his  duty  to  explain  the  obligations 
into  which  the  other  man  is  entering,  and  he  has  neither  time 
nor  inclination  to  do  such  a  thing.  It  is  every  man's  duty — 
and  his  necessity — to  properly  inform  himself  regarding  the 
intricacies  of  his  calling  before  entering  it  for  service.  It  is 
the  mission  of  business  education  to  properly  train  young  men 


338  COMMERCIAL  CREDITS. 

and  women  for  the  intelligent  performance  of  the  duties  of  an 
active  life  in  the  marts  of  trade. 

T/iird.  Every  successful  man  must  have  a  good  practical 
education,  and  every  eminent  man,  no  matter  what  his  call- 
ing, must  be  a  good  business  man. 

The  successful  farmer  is  always  a  good  business  man.  Many 
farmers  who  work  hard  and  raise  a  good  crop  make  little  out 
of  it,  because  of  the  lack  of  business  ability  to  properly  dispose 
of  it. 

The  best  minister,  and  the  one  that  not  only  gets  the  larg- 
est salary  but  preaches  to  the  largest  audiences,  is  the  one  who 
has  a  good  business  training  and  uses  his  business  knowledge 
in  his  work.  His  sermons  are  practical  sermons  and  they  are 
therefore  forcible  and  convincing. 

The  eminent  lawyers,  and  judges,  and  statesmen  are  all 
good  business  men,  and  whether  they  ever  took  a  special 
course  in  business  education  or  not,  they  possess  a  practical 
training  that  is  at  once  thorough  and  useful. 

And  so  it  is  through  all  the  callings  of  life.  There  are  few 
persons,  indeed,  who  do  not  transact  some  kind  of  business 
almost  every  day,  and  for  this  reason  a  business  training  ought 
to  be  a  part  of  the  education  of  every  man  and  woman. 

Fourth.  Commercial  supremacy  is  the  great  question  of 
the  day.  The  growth  and  advancement  of  commercial  rela- 
tions, and  the  development  of  our  natural  resources,  and  the 
facilities  for  exchanging  products  is  the  great  problem.  And 
how  are  these  to  be  solved  ?  By  education  !  There  is  no 
other  answer.  And  considering  how  great  is  the  question  of 
trade,  and  how  sharp  the  competition,  we  may  easily  see  that 
our  natural  abilities  must  be  strengthened  by  thorough  drill  in 
the  laws  and  the  usages  of  commerce. 

The  would-be  debtor  either  has  or  has  not  the  necessary 
preparatory  training  to  enable  him  to  succeed,  and  this  should 
not  escape  the  consideration  of  the  would-be  credit  man. 


THE  ELEMENTS  OF  BUSINESS.  339 

§  517.  Punctuality.  First.  Some  one  has  said  that  punctu- 
ality is  the  politeness  of  kings,  the  duty  of  gentlemen,  and  the 
necessity  of  business  men.  Lack  of  punctuality  destroys  con- 
fidence in  an  individual,  and  produces  distrust  and  even  con- 
tempt; while  a  practice  of  this  virtue  has  been  the  means  to 
the  success  of  many  a  man.  The  whole  structure  of  the  credit 
system  rests  on  confidence  of  man  in  man,  without  which 
there  could  be  no  such  thing  as  credit.  The  savage  must  see 
what  he  trades  for,  he  does  not  trust  to  anyone's  word.  He 
sees  what  he  gets  and  there  is  no  confidence.  But  as  the  hu- 
man race  advances  toward  civilization  we  find  confidence  in- 
creasing, and  the  growth  of  trade  and  commerce  keeping  pace. 
The  liberality  with  which  in  this  day  we  give  credit,  and  the 
great  confidence  in  the  buyer's  promise  to  pay  that  is  every- 
where exhibited,  is  only  another  proof  of  our  greater  civiliza- 
tion. 

But  not  only  does  the  credit  system  rest  on  confidence,  but 
confidence  rests  in  turn  upon  punctuality.  If  a  man  lies  or  de- 
ceives you,  or  makes  promises  which  he  neither  fulfills  nor 
explains,  there  can  be  no  confidence. 

Second.  Again,  if  a  man  is  prompt  in  fulfilling  his  engage- 
ments, and  does  not  keep  you  waiting,  he  shows  that  he  has 
some  regard  for  your  time  as  well  as  his  own.  and  thus  we 
have  the  means  of  ascertaining  another's  respect  for  us  and  our 
affairs  as  well  as  for  his  own  honesty.  For  an  appointment 
is  a  contract  and  he  who  breaks  his  word  and  acts  dishonestly 
in  one  thing,  no  matter  how  small,  is  not  the  one  to  be  trusted 
in  greater  affairs.  He  that  is  careless  about  his  time  will  not 
be  attentive  to  his  business,  and  is  not,  therefore,  the  person 
to  be  trusted  with  our  goods. 

This  man  who  is  forever  behind  time  and  robbing  men  of 
valuable  time  is  a  "general  disturber  of  others'  peace  and 
serenity."  He  does  everything  out  of  time  and  gets  every  one 
out  of  humor.  "But  it  will  generally  be  found  that  the  men 
who  are  habitually  behind  time,  are  as  habitually  behind  sue- 


340  COMMERCIAL  CREDITS. 

cess,"  and  those  who  have  courage  enough  to  trust  them  do 
so  at  their  peril. 

But  the  man  behind  time  would  make  you  believe  he  is 
rushed  to  death  with  work — that  he  has  not  had  time  to 
breathe  for  weeks  and  weeks,  and  now  he  cannot  see  out  of  his 
work — and  so  he  rants  about  his  own  business,  (which  he 
ought  to  keep  under  his  own  lock  and  key),  until  he  is  late  at 
his  next  appointment,  and  until  you  are  disgusted  with  his 
staying-qualities.  Yet  it  is  a  wonder  how  much  can  be 
accomplished  by  a  methodical  arrangement  of  time.  The 
best  merchant  does  his  work  at  the  proper  time  and  while  he 
gets  vastly  more  done,  he  likewise  seems  to  have  more  spare 
time  than  the  irregular  man. 

Third.  Men  say  that  time  is  money,  but  it  is  more;  it  is 
life  itself,  for  that  is  the  stuff  life  is  made  of.  He  who  has  no 
regard  for  his  own  time,  much  less  that  of  others,  has  not 
yet  learned  the  first  principle  of  business.  The  idler  is  a 
prey  to  his  own  mind;  he  is  ever  on  the  lookout  for  filthy 
habits  and  low  manners;  he  is  ready  to  catch  at  straws  of 
uselessness,  but  his  mind  seldom,  or  never,  turns  to  mutual 
improvement.  In  fact  his  mind  gradually  deteriorates  until 
he  is  an  easy  victim  for  the  devil,  and  swallows  even  the 
naked  hook. 

There  is  much  wisdom  in  Lord  Chesterfield's  advice  to  his 
son  in  regard  to  time:  "  Every  moment  you  now  lose  is  so 
much  character  and  advantage  lost;  as,  on  the  other  hand, 
every  moment  you  now  employ  usefully  is  so  much  time  wisely 
laid  out  at  prodigious  interest."  Time  is  neither  gold  nor 
bonds,  but  it  is  as  valuable  as  either,  and  he  who  willfully 
wastes  time  is  not  a  proper  person  to  trust  with  our  goods, 
for  he  has  not  demonstrated  that  he  can  take  care  of  his  own. 
Such  a  man  is  on  the  sure  road  to  failure. 

Fourth.  Punctuality  is  a  debt  which  every  man  owes. 
Let  him  faithfully  discharge  the  obligation.  Punctuality  is 
honesty;  honesty  is  truthfulness;  truthfulness  is  character. 


THE  ELEMENTS  OF  BUSINESS.  341 

If  you  have  not  punctuality  you  have  not  the  best  of  business 
qualifications.  A  tardy  man  deserves  the  same  consideration 
as  a  dishonest  one,  and  a  dishonest  one  makes  an  undesirable 
debtor.  Lord  Nelson  once  said:  "  I  owe  all  my  success  in 
life  to  having  been  always  a  quarter  of  an  hour  before  my 
time."  But  it  is  so  with  all  great  men.  This  trait  was  pos- 
sessed by  and  forcibly  demonstrated  in  them  all.  No  great 
man  was  ever  known  to  be  without  this  quality  fully  devel- 
oped. It  is  the  way  great  men  are  made. 

Fifth.  In  treating  of  punctuality  in  connection  with  credits, 
it  is  doubtful  if  there  is  any  other  quality  "  that  exerts  so  great 
an  influence  on  the  affairs  of  commerce."  If  we  were  all 
punctual  to  perform  our  obligations  as  we  agree,  whether  to 
pay  a  debt  or  "  fulfill  a  contract,  much  of  our  tribulation  and 
distress,  and  most  of  our  failures,  would  be  avoided.  If  you 
sell  a  man  goods  on  sixty  days'  time,  you  calculate  on  receiv- 
ing payment  at  maturity  of  the  account,  and  you  have  a  right 
to  expect  and  demand  it.  His  failure  to  keep  his  promise  is 
liable  to  cause  your  failure  to  keep  yours.  Being  behind  time 
is  often  as  ruinous  to  the  creditor  as  being  made  the  victim 
of  bare-faced  fraud." 

In  extending  credit,  we  should  ascertain  the  applicant's 
reputation  for  punctuality,  and  if  this  record  is  not,  at  least, 
up  to  the  average,  we  will  do  well  to  keep  our  goods  for  other 
buyers.  Some  men  are  "slow  pay"  by  habit,  and  while  good 
business  men  ought  to  teach  them  to  "come  to  time,"  yet  if 
all  other  conditions  are  favorable  we  are  still  justified  in  ac- 
commodating them.  "  We  can  make  them  prompt  with  us  if 
we  start  out  to  do  it,  and  do  it  we  should  by  all  means."  If 
we  teach  a  man  to  be  punctual,  we  have  rendered  him  a  great 
service  and  helped  him  advance  his  interests.  So  these  "slow 
ones"  may  be  made  to  advance  with  the  advancement  of  the 
age;  but  should  one,  who  has  always  been  prompt  in  meeting 
his  obligations,  suddenly  begin  to  fall  behind  and  sacrifice  his 
established  record,  we  may  be  sure  that  there  is  something 
wrong,  and  we  should  begin  to  be  on  the  alert. 


342  COMMERCIAL  CREDITS. 

§  5 1 8.  Antecedents.  First.  A  careful  consideration  of  a 
man's  antecedents  will  very  accurately  indicate  his  record  for 
honesty,  ability,  experience,  and  punctuality.  We  here  get 
important  facts  and  ideas  regarding  his  good  and  bad  qualities 
that  enable  us  to  more  intelligently  make  an  estimate  of  his 
responsibility  as  a  debtor. 

In  looking  up  a  man's  record,  we  naturally  wish  to  know 
how  long  he  has  been  in  business,  and  what  success  he  has 
had  during  that  time.  The  time  for  men  to  do  their  most 
successful  work,  and  become  rich,  is  limited  to  possibly  twen- 
ty-five or  thirty  years.  The  time  is  short — too  short  for  most 
men — and  it  takes  ambition  and  energy  to  accomplish  it.  But 
as  getting  rich — especially  getting  rich  in  haste — is  a  charac- 
teristic of  our  people,  so  a  man  ought  to  show  signs  of  success 
after  he  has  been  in  business  a  very  few  years. 

Second.  That  a  man  has  once  failed  in  business  is,  of  itself, 
of  no  consequence,  But  in  case  of  past  failure  the  reasons 
which  led  up  to  it  should  be  ascertained.  A  man  may  come 
out  of  a  wreck  perfectly  honest,  and  better  prepared  to  suc- 
ceed, owing  to  his  experience,  than  he  was  before.  "  Force  of 
circumstances,  joined  to  a  little  inexperience  and  imprudence, 
may  have  resulted  in  his  bankruptcy;  but  in  a  case  of  this 
kind,  where  the  integrity  of  the  party  has  been  kept  inviolate, 
the  business  community  is  ever  ready  to  overlook  past  mis- 
takes and  bestow  upon  him  its  confidence  in  the  future.  But 
the  case  must  be  a  clear  one,  and  his  integrity  must  stand  out 
uncompromisingly;  it  must  be  'net  and  no  discount.''  If 
everything  seems  to  indicate  a  final  recovery,  we  may  be  jus- 
tified in  extending  our  favors. 

But  if  the  failure  was  the  result  of  poor  business  methods,  in- 
attention to  business,  dishonesty,  or  any  wilful  breach  of  busi- 
ness principles,  he  can  claim  no  right  to  our  confidence,  and 
we  must  refuse  him  any  help  in  the  way  of  credit. 

A  lack  of  proper  training  and  experience  is  the  cause  of 
many  of  the  failures  reported  each  week  by  the  mercantile 


THE  ELEMENTS  OF  BUSINESS.  343 

agencies,  and  where  this  is  the  real  cause  the  world  is  ready 
to  forgive,  and  lend  a  helping  hand  to  assist  the  honest  unfor- 
tunate ones  to  a  firm  footing.  While  willingness  to  help  the 
hapless  may  be  induced  by  personal  interest  and  for  personal 
gain,  yet  there  is  still  a  commendable  Christian  sentiment 
pervading  it  all  that  is  considered  one  of  the  grand  features  of 
our  modern  business  life. 

TJiird.  But  failure  is  a  serious  matter.  There  is  a  ten- 
dency to  pass  them  off  as  ordinary  and  of  no  consequence. 
The  debtor  thinks  he  will  soon  be  on  a  firm  footing  again  and 
be  better  off  than  ever;  that  his  experience  will  be  worth  a 
great  deal  to  him  and  enable  him  in  the  future  to  avoid  all 
the  difficulties  which  cause  failure.  But  no  one  can  be  any 
better  for  having  failed.  People  will  not  soon  forget  it,  and 
he  must  live  and  act  an  honest  life  for  a  long  time  before  they 
will  believe  he  really  intends  to  do  right. 

And  then  the  debtor  usually  finds  but  little  trouble  in  com- 
promising with  his  creditors,  and  thus  enabling  him  to  begin 
business  again,  but  he  is  fortunate  indeed  if  he  ever  recovers 
from  the  blight.  Thieves  may  get  some  benefit  from  a  failure, 
but  not  usually  so  with  honest  men. 

Occasionally  it  is  said  that  failure  adds  zest  and  gives  men 
renewed  determination  and  that  it  thus  paves  the  way  for  fu- 
ture success,  and  we  hear  it  said  too  that  success  comes  only 
after  a  series  of  failures;  but  we  are  forced  to  believe  that  the 
failure  might  be  omitted  with  good  effect  in  all  these  cases. 
Failure  means  a  backward  step;  it  means  loss  of  time  and 
loss  of  money;  it  means  loss  of  confidence  and  loss  of  credit. 
It  takes  time  to  regain  these,  and  the  after  success  might,  and 
no  doubt,  would  have  been  even  more  brilliant  had  the  failure 
been  avoided. 

§519.  Competition.  First.  As  the  natural  resources  of 
the  country  are  developed,  and  population  begins  to  increase 
in  any  locality,  new  business  enterprises  are  opened  up,  and 
often  two  stores  are  started  where  only  one  is  needed.  Capi- 


344  COMMERCIAL  CREDITS. 

tal  is  increasing  in  this  country  very  rapidly  and  there  is  no 
nook  or  corner  where  there  is  a  possibility  of  its  lucrative  em- 
ployment but  capital  flows  there  to  seek  investment.  No 
enterprise  is  so  large  that  it  cannot  find  capital  enough  to 
meets  its  wants,  none  so  small  that  men  do  not  strive  to  make 
a  living  out  of  it. 

If  a  man  with  energy  and  the  other  qualifications  to  suc- 
cess pushes  into  a  new  locality  and  gets  a  start  before  others 
come,  he  is  pretty  sure  to  hold  his  own  and  come  out  winner. 
Of  course  every  new  town  is  going  to  be  the  town;  and  every 
new  suburb  is  going  to  do  wonders,  and  usually  there  are  more 
stores  started  than  the  community  can  support  and  at  last 
some  of  them  must  go,  and  only  the  best  ones  remain. 

Second.  But  competition  is  a  good  thing  after  all.  Those 
who  wish  to  rise  must  have  opposition.  "The  kite  will  not  go 
up  in  a  calm."  And  as  a  usual  thing  the  only  store  in  a  lo- 
cality will  not  amount  to  much.  The  dealer  without  opposi- 
tion thinks  he  has  things  his  own  way  and  people  must  trade 
with  him.  He  carries  only  second-class  goods — though  per- 
haps he  sells  for  first-class  prices — and  makes  no  particular 
effort  to  please  his  customers;  he  has  no  regard  for  the  neat- 
ness of  his  establishment,  and  becomes  generally  careless  and 
indifferent.  He  probably  imagines  he  sells  as  many  goods  as 
though  he  went  to  the  expense  of  keeping  a  first-class  store, 
but  experience  has  taught  many  a  man  that  such  is  not  the 
case.  People  buy  as  little  as  possible  and  are  not  pleased 
with  even  that.  But  let  a  good  store  start  in  competition  to 
the  one  we  have  described  and  see  the  inevitable  result — peo- 
ple will  purchase  a  third  more  goods  and  be  pleased  with  the 
outlay.  'Now  the  old  store  must  either  improve  or  go  under. 
Competition  lends  zest  and  vim  to  trade  and  makes  dealers 
sharpen  up  their  energies  to  obtain  and  keep  patronage. 

But  competition  is  also  necessary  for  the  protection  of  buy- 
ers, and  as  buyers  are  by  far  the  larger  class  we  ought  to  look 
to  the  greatest  good  to  the  greatest  number.  "  Competition 


THE  Ei.:  MENTS  OF  BUSINESS.  545 

prevents  robbery,  and  every  merchant  would  be  a  licensed 
robber  of  the  people  if  he  could,  and  if  competition  did  not 
prevent  him. 

Third.  There  is  no  law  to  regulate  the  profit  to  be  made 
in  selling  goods.  Each  man  is  a  law  unto  himself  and  regu- 
lates profits  in  conformity  to  his  circumstances.  He  sells  at 
10  per  cent,  profit  if  he  has  to,  but  left  to  his  own  idea  of  right 
and  equity,  100  or  200  per  cent,  would  be  only  a  moderate 
compensation  for  his  time,  the  use  of  his  money  and  the  ex- 
pense he  is  to  for  the  accommodation  of  the  public.  The  less 
competition  the  higher  the  prices. 

The  sole  object  of  trusts  and  combines  is  to  remove  compe- 
tition and  then  raise  and  maintain  prices  as  high  as  the  public 
purse  will  permit.  We  may  take  for  example  the  oat  meal 
trust.  It  buys  up  all  the  oatmeal  mills  in  the  country  (those  it 
cannot  buy  it  shuts  down  by  paying  the  owner  his  year's  prof- 
its) and  with  the  supply  all  in  its  own  hands  and  no  competi- 
tion it  may  regulate  the  price  as  it  chooses. 

The  same  thing  is  true  of  a  corner  on  the  board  of  trade.  It 
consists  in  removing  all  competition  and  then  regulating  prices 
according  to  a  forced  demand.  One  man,  or  a  set  of  men,  buys 
up  all  the  wheat  there  is  in  sight  and  many  bushels  of  futures. 
With  all  the  wheat  under  their  own  control  they  fix  the  price 
as  high  as  their  conscience  will  permit. 

But  every  retail  and  wholesale  dealer  would  be  a  trust  if  he 
could.  And  he  usually  is  when  he  has  the  field  to  himself. 

Fourth,  Another  point  which  is  appropriate  to  mention  in 
this  connection  is  the  matter  of  business  secrets.  Brooks, 
the  successful  Bostonian  said  that  if  a  man  wished  to  succeed, 
14  let  him  mind  his  own  business."  And  Girard  says  that 
uno  advantage  results  from  telling  one's  business  to  others, 
except  to  create  jealousy  or  competition  when  we  are  fortunate, 
and  to  gratify  our  enemies  when  we  are  otherwise." 

The  following  from  the  "modern  office"  illustrates  the  point 
nicely: 


346  COMMERCIAL  CREDITS. 

Not  long  ago,  I  met  the  bookkeeper  of  a  merchant  who 
was  in  rather  deep  water,  and  whom  a  very  slight  push  might 
force  beyond  any  power  to  save.  While  we  were  talking 
another  man  joined  us,  and  turning  to  the  young  man,  asked: 

"  How  is  Mr.  M.  getting  along  in  his  affairs  ?" 

"  Ain't  getting  along  at  all,"  was  the  answer. 

"Won't  he  pull  through?" 

"He  thinks  he  will." 

"What  do  you  think?" 

"  I  think  it  is  six  of  one  and  half  a  dozen  of  another." 

Within  an  hour  the  questioner  had  put  his  claim  against 
M.  into  the  hands  of  a  lawyer.  It  was  promptly  brought  be- 
fore a  justice,  and  before  night  it  was  known  to  several  that  M. 
had  been  sued.  Now  notice  how  things  had  worked.  M.  had 
made  arrangements  with  a  banker  to  help  him  over  the  crisis, 
and  the  matter  was  to  have  been  closed  the  next  morning  at 
nine  o'clock;  but  in  the  meantime  M.'s  clerk  had  said  what  he 
ought  never  to  have  said,  brought  his  employer  before  the 
court,  and  frightened  the  banker  from  helping  him.  The 
merchant  made  an  assignment. 

Said  a  merchant  to  me  while  we  were  talking  on  this  sub- 
ject: "Boys  will  blab  and  you  can't  help  it.  I  remember  one 
of  my  clerks  destroyed  a  very  pretty  trade  I  once  had  on  a 
patent  saw.  I  had  no  monopoly  of  it,  except  from  the  fact 
that  none  of  my  competitors  kept  it.  I  went  to  work  quietly 
and  built  up  a  large  trade  on  it — a  trade  that  paid  me  a 
couple  of  thousand  dollars  in  the  season.  I  cautioned  my 
traveling  men  to  talk  about  the  saw  only  to  our  customers, 
and  to  do  no  outside  bragging.  But  I  overlooked  my  entry 
clerk;  I  didn't  suppose  he  was  going  up  and  down  the  street 
telling  of  the  saws  we  sold,  but  that  is  just  what  he  did.  He 
fancied  it  added  to  his  importance  to  show  that  the  house 
was  doing  a  big  trade,  and  so  he  kept  up  an  admirable  tale  of 
our  trade  in  saws,  often  telling  this  when  among  the  clerks  of 
my  competitors.  It  was  not  long  until  I  found  the  saw  with 


THE  ELEMENTS  UK  BUSINESS.  347 

other  houses,  and  then  my  sales  and  profits  began  to  drop. 
That  boy's  boasting  cost  me  $1,500  a  year." 

Fifth.  The  most  important  thing  that  concerns  us  here  is 
how  competition  affects  our  would-be  debtor's  chances  for 
success.  It  can  hardly  be  supposed  that  it  ever  increases  his 
chances,  though  it  may,  and  often  does,  lessen  them.  It  does 
not  allow  him  to  charge  more  profit,  but  makes  him  give 
more  goods  and  better  service  for  the  money,  and  the  public 
is  the  gainer  by  the  life  that  competition  gives  to  trade.  If 
the  debtor  has  no  opposition  and  other  things  are  not  unfav- 
orable, his  chances  may  be  said  to  be  good,  and  the  credit 
man  would  be  justified  in  extending  his  accommodations 
accordingly.  But  if  competition  is  sharp,  and  the  locality 
has  more  stores  than  it  can  support,  the  question  resolves 
itself  into  one  of  comparitive  ability,  energy  and  financial 
status  of  the  applicant.  If  the  applicant  is  a  new  comer,  his 
chances  will  still  be  lessened,  for  an  old  firm  with  an  estab- 
lished trade  will  not  probably  sit  still  and  let  a  new  comer 
get  a  foothold;  and  these  things  must  be  borne  in  mind  in 
considering  the  surroundings  of  the  man  you  are  about  to 
trust.  If  his  ability,  both  financial  and  otherwise,  is  not 
good  in  comparison  with  others,  the  risk  should  be  assumed 
with  great  caution. 

If,  however,  a  new  firm  buys  out  an  old  and  well  established 
business,  the  matter  of  competition  is  not  so  important.  The 
applicant  now  has  the  benefit  of  years  of  advertising,  the 
good-will  of  the  old  firm,  and  his  success  is  assured  as  far  as 
competition  may  be  concerned. 

Mr.  Earling  remarks  that  "The  professional  manager  of 
credits  gives  even  little  points  careful  consideration.  Every 
item  of  advantage  and  disadvantage  that  the  applicant  for 
credit  presents  must  be  carefully  weighed,  and  if  the  balances 
do  not  show  in  his  favor,  it  is  not  alone  your  privilege  but 
your  duty,  as  a  good  business  man,  to  decline  the  proffered 
favor." 


348  COMMERCIAL  CREDITS. 

§  520.  Married  or  Single.  First.  Even  a  man's  social 
relations  have  an  important  bearing  on  the  question  under 
consideration.  It  may  be  that  this  is  not  always  taken  ac- 
count of,  but  the  fact  remains;  nevertheless,  that  it  should  be. 
A  credit  is  a  trust.  We  trust  to  the  debtor's  responsibility 
and  integrity,  or  to  legal  measures  for  the  fulfillment  of  his 
obligations.  These  are  our  means  of  collection  and  without 
them  we  would  not  be  justified  in  giving  any  one  credit.  If 
we  do  not  trust  a  man  and  if  we  have  no  confidence  in  him  we 
will  surely  not  let  him  have  our  goods  and  take  his  promise 
to  pay  instead.  Credit  and  trust  are  based  on  confidence. 

It  may  be  new  to  some,  but  one  of  the  main  questions 
asked  by  leading  houses,  of  an  applicant  for  credit  favors,  is  if 
he  is  married  or  single.  This  is  not  prompted  by  curiosity 
nor  impudence.  "All  things  being  equal,  the  man  with  a  fam- 
ily will  have  the  preference;  and  the  reason  for  it  is  founded 
on  the  presumption  that  the  latter,  owing  to  his  family  ties 
and  domestic  responsibility,  is  considered  more  in  the  light  of 
a  permanent  fixture,  more  settled,  and  is  credited  with  a 
greater  degree  of  stability.  The  single  man,  on  the  other 
hand,  without  family  ties  and  considerations,  and  who  has  no 
one's  welfare  to  consider,  and  no  reputation  and  character  to 
injure  but  his  own,  is  undoubtedly  more  prone  to  questionable 
habits,  and  is  an  easier  prey  to  temptations.  If  some  irregu- 
larity, either  premeditated  or  otherwise,  imperil  his  safety, 
there  is  nothing  to  hinder  him  from  getting  out  of  the  law's 
reach  on  short  notice."0 

Second.  This  is  the  way  business  men  view  the  matter. 
Not  long  ago  an  eastern  firm  that  employed  several  hundred 
men,  gave  notice  that  all  their  single  men  who  were  not  mar- 
ried by  a  specified  future  date  would  be  discharged.  This 
may  appear  to  be  an  extreme  measure,  but  it  fully  illustrates 
the  importance  which  business  men  place  on  the  matter. 
"Are  you  married?"  is  one  of  the  principal  interrogations  put 

"Earling. 


THE  ELEMENTS  OF  BI.'SINKSS.  349 

to  applicants  for  positions  of  trust,  and  where  good  faithful 
work  is  demanded.  And  a  debtor  is  to  be  viewed  in  the  same 
light  as  a  trusted  employe;  the  question  and  its  answer  is  just 
as  important  in  extending  credit  as  it  is  in  trusting  your  prop- 
erty to  an  employe.  The  cases  are  identical. 

Third.  It  is  not  inferred  here  that  a  married  man  possesses 
more  energy,  ability  or  honesty  than  a  single  man.  The  dif- 
ference is  in  the  conditions  surrounding  the  two  men,  which 
may  cause  different  ambitions  and  different  results.  "  The  mar- 
ried state  with  a  man  favors  personal  economy,  concentration  of 
effort  to  a  purpose,  the  mainspring  of  that  purpose  being  the 
comfort  and  welfare  of  his  family."  Again,  if  a  man  is  mar- 
ried he  has  something  more  than  self  to  live  and  work  for, 
and  will  accordingly  apply  himself  more  closely  and  strive 
harder  for  ultimate  success.  "  Our  whole  social  and  commer- 
cial fabric  is  based  on  the  individual  effort  and  desire  of  each 
man  to  raise  his  family  to  the  highest  degree  of  respectability 
and  independence." 

$521.  Economy.  First.  "  Every  advantage  has  its  tax," 
and  so  the  advantage  arising  from  strict  economy  means  self- 
denial  and  seeming  sacrifice.  "  With  every  advantage  of 
capital,  ability  and  prestige,  a  merchant's  ultimate  success 
would  still  be  a  matter  of  doubt  if  he  did  not  combine  econo- 
my with  his  other  good  qualities  and  advantages."  To  become 
wealthy  means  economy  by  a  thorough  system  of  saving.  If 
a  man  never  saves  he  will  never  accumulate.  A  failure  to 
save  is  the  great  drawback  to  many  a  man's  ultimate  financial 
success.  It  is  easy  enough  to  make  money,  but  to  save  it  and 
thus  accumulate  capital,  is  to  deny  oneself  everything  that 
is  not  positively  necessary.  Extravagance  has  been  the  direct 
cause  of  many  a  man's  commercial  failure,  and  the  world 
does  not  seem  to  be  improving  very  fast  in  this  respect. 

But  what  is  meant  by  extravagance  is  regulated  entirely  by 
one's  income.  One  man  might  spend  $30,000  or  $40,000  a 
year  and  not  be  extravagant,  while  another  might  be  prodigal 


350  COMMERCIAL  CREDITS. 

indeed  if  he  were  to  spend  $1,000  or  $1,500.  It  is  a  matter 
to  be  regulated  entirely  by  the  income  of  individuals. 

It  takes  only  a  glance  at  the  lives  of  successful  merchants 
to  prove  that  they  possessed  the  quality  of  frugality  in  per- 
sonal and  business  expenses,  and  that  they  practiced  this  as 
one  of  the  cardinal  virtues.  We  look  at  these  men  with  their 
wealth  and  independence,  and  we  are  wont  to  think  that  they 
do  not  deny  themselves  any  comfort  or  pleasure,  but  we  are 
looking  at  results,  not  causes.  They  practiced  strict  economy 
when  it  was  requisite,  and  until  they  had  a  solid  foundation 
they  practiced  self-denial  and  true  economy.  Of  this  there  is 
no  doubt.  They  may  have  reached  a  point,  now,  where  econ- 
omy does  not  mean  so  much  self-denial  as  it  did  then,  but 
this  only  proves  our  assertion  that  a  man  may  spend  $30,- 
ooo  a  year  and  not  be  extravagant.  Those  who  do  the  envy- 
ing would  probably  not  be  willing  to  undergo  the  struggles 
which  every  successful  merchant  has  undergone,  and  be  will- 
ing to  endure  hardships  and  suffering  while  there  is  money  to 
be  had.  But  such  is  the  story  of  the  early  life  of  all  the  great 
men  who  have  amassed  a  fortune. 

Men  are  free  to  act  as  they  choose  and  may  be  frugal  or 
prodigal  as  they  please.  If  a  man  has  nothing  to  spend  and 
therefore  spends  nothing,  he  is  in  no  sense  economical.  Econ- 
omy is  a  voluntary  act — a  willingness  to  renounce  present 
comforts  which  are  within  our  means  for  the  attainment  of 
future  prosperity  and  happiness. 

Second.  Some  one  has  said  that  the  world  is  divided  into 
two  classes,  those  who  save  and  those  who  spend — the  thrifty 
and  the  extravagant.  The  building  of  all  the  houses,  the  fac- 
tories, the  great  institutions,  and  the  accomplishment  of  all 
other  great  works  which  have  rendered  man  both  civilized  and 
happy,  has  been  done  by  the  savers — the  thrifty.  But  what 
has  the  other  class  done? — wasted  their  resources  and  enslaved 
their  bodies  and  souls. 

The  object  of  business  is  to  make  money,  and  the  majority 


THE  KLEMENTS  OF  BUSINESS.  351 

of  those  in  business  wish  to  make  money,  primarily,  so  as  to 
provide  for  daily  wants,  and  few  make  any  more.  And  it  is 
doubtful  if  many  of  them  make  even  that,  for  when  we  con- 
sider the  great  amount  lost  in  failures  every  year,  we  realize 
that  this  surely  goes  to  the  maintenance  of  the  debtor  who 
has  tailed. 

Success  is  not  an  attendant  on  those  who  are  content  with 
present  attainments,  and  as  the  merchant  begins  to  make  a 
respectable  living  there  is  born  in  him  a  desire  to  accumulate, 
to  lay  up  something  for  his  future  independence,  and  happi- 
ness, and  the  welfare  of  those  who  are  dependent  on  him. 
"Eventual  liberty  and  ease  are  the  motives."  But  he  can 
realize  his  desires  only  under  favorable  circumstances  arid 
conditions.  He  must  practice  the  cardinal  virtues — honesty, 
industry,  and  economy. 

Third.  An  eminent  writer  says  that  it  is  a  recognized  fact 
that  consumers  will  buy  more  when  they  can  do  so  on  credit 
than  when  they  have  to  pay  cash.  This  may  be  verified  in 
any  community.  Now,  when  the  dealer  can  buy  on  credit  he 
not  only  buys  more  than  is  necessary  but  he  wastes  in  other 
directions.  He  has  under  his  immediate  control,  both  goods 
and  money,  and  he  may  gratify  his  personal  wants  and  com- 
forts without  so  much  as  having  to  ask  for  credit.  He  takes 
and  uses  what  he  wants,  and  after  he  has  consumed  his  own, 
as  well  as  his  creditor's  property,  he  goes  into  bankruptcy. 
"When  we  consider,  then,  the  ease  with  which  wants  can  be 
gratified,  and  compare  it  with  man's  ability,  or  rather  inability 
to  resist  temptation,  the  smallness  of  the  number  ot  success- 
ful business  men  is  no  surprise.  If  the  practice  of  economy 
were  a  universal  trait,  there  would  be  less  of  pauperism  and 
poverty.  It  is  the  opposite  trait  in  man,  however,  that  pre- 
vails. Profligacy  and  extravagance  are  the  causes  that  dis- 
turb individuals  and  society." 

Fourth.  "For  practical  illustrations  of  what  economy,  or 
want  of  it,  will  accomplish,  it  is  only  necessary  for  the  reader 


352  COMMERCIAL  CREDITS. 

to  look  back,  say  twenty-five  years,  and  recall  the  houses  in 
business,  and  see  how  many,  or  rather  how  few,  have  sur- 
vived till  the  present  time.  There  must  be  reasons  for  this, 
and  a  careful  examination  will  reveal  them.  It  will  be  found 
invariably  that  the  survivors  have  been  of  the  careful,  con- 
servative, and  rigidly  economical  class.  They  haven't  made 
haste,  neither  have  they  made  waste. 

"Of  a  certain  twenty-five  large  houses  doing  business  twenty- 
five  years  ago,  I  find  today  but  two  in  existence.  Personal 
acquaintance  with  the  business  methods  of  all  these  houses 
leads  to  but  one  verdict.  It  was  simply  a  question  of  econ- 
omy versus  extravagance  and  careless  management.  The 
man  who  is  economical  is  always  careful." d 

Fifth.  One  of  the  great  troubles  vith  young  and  rising 
business  men  is  that  their  wants  increase  in  a  much  greater 
proportion  than  their  incomes.  It  is  so  much  easier  to  in- 
crease our  expenses,  both  business  and  personal,  than  to 
increase  our  business  and  our  profits.  This  is  really  one  of 
the  great  questions  for  consideration. 

In  extending  credit  favors,  the  applicant's  record  for  econ- 
omy should  be  given  proper  consideration,  as  our  safety  and 
the  debtor's  success  depend  very  largely  upon  this  element. 

$  522.  Age.  First.  As  creditors,  our  safety  is  not  alone 
dependent  on  the  debtor's  ability,  integrity  and  economy,  but 
we  must  rely  also  upon  his  ambition,  energy  and  capacity  for 
push  and  activity.  These  qualities  are  usually  on  the  decline 
in  old  age,  and  are  apt  to  be  misdirected  for  want  of  experi- 
ence in  the  extremely  young  business  man.  "After  a  man 
has  passed  the  prime  of  life  our  confidence  decreases  in  the 
ratio  of  his  advancing  years,  and  consequent  decline  of  vitality 
and  active  usefulness."  These  remarks  apply  only  to  that 
class  of  men  who  are  past  the  prime  of  life  and  are  beginning 
business  in  a  new  line.  For  an  old  man  to  engage  in  a  new 
undertaking  is  a  virtual  admission  that  up  to  this  point  his 

(i  Earling. 


THE  ELEMENTS  OF  BUSINESS.  353 

life  has  been  a  failure.  Now,  if  the  best  part  of  his  life  has 
shown  no  fruit,  what  can  be  expected  of  him  in  his  old  age 
when  in  competition  with  keen  young  men  and  advanced 
ideas  ? 

Second.  In  extending  credit  to  an  applicant  past  the  prime 
of  life,  the  credit  man  must  reason  on  the  probability  of  failure 
and  the  possibility  of  securing  his  money  after  that.  If  he 
were  a  young  or  middle  aged  man  we  might  speculate  on  his 
future  possibilities;  the  latter  has  a  long  future  before  him  and 
we  may  feel  that  a  judgment  against  him  may  some  day  be 
good,  or  we  may  compromise  and  let  him  continue  with  the 
expectation  of  recovering  the  balance  through  his  future  pos- 
sible success.  There  is  hope  and  expectation  here,  and  these 
are  a  part  of  the  foundation  of  the  credit  system. 

But  the  chances  of  an  old  man  recovering  after  failure 
cannot  be  considered. 

Third.  With  the  extremely  young  business  man  the 
chances  are  also  quite  precarious.  If  he  fails  he  is  very  likely 
to  reason  that  he  has  quite  enough  experience  in  that  calling 
and  so  he  seeks  employment  in  some  other  line  of  business. 
In  this  way  his  old  creditors  lose  sight  of  him,  and  by  the 
time  he  is  again  ready  to  engage  in  business  for  himself,  his 
old  debts  are  forgotten  or  outlawed. 

§  523.  Capital.  First.  It  takes  capital — money — to  pay 
bills.  Men  may  use  ability,  experience,  etc.,  and  produce 
capital,  however,  and  with  the  proceeds  pay  their  debts. 
When  the  creditor  trusts  out  his  goods,  he  relies  on  the  debtor's 
ability  and  honesty  to  increase  their  value,  but,  for  his  safety, 
he  also  requires  that  the  debtor  furnish  a  part  of  the  capital, 
and  the  larger  this  proportion  is  to  the  amount  of  credit  asked 
the  better  it  will  be  for  both  parties. 

Second.  The  amount  of  capital  in  any  case  to  insure  safety 
is  a  matter  of  speculation.  "  Some  men  have  the  faculty  of 
making  money,  or  rather  of  accumulating  it,  under  the  most 
unfavorable  circumstances,  while  others,  even  more  favorably 


354  COMMERCIAL  CREDITS. 

situated,  can  never  make  both  ends  meet."  So  it  seems  that 
capital,  instead  of  being  the  primary  element  in  the  make-up 
of  a  would-be  debtor,  is  really  a  secondary  matter.  We  must 
first  determine  whether  or  not  the  applicant  possesses  the 
essential  qualifications  to  success.  Few  business  houses  limit 
their  transactions  to  a  cash  capital.  It  is  not  at  all  probable 
that  ten  per  cent,  of  all  kinds  of  business  houses  could  do 
enough  business  on  their  cash  capital  to  make  it  profitable. 
They  use  confidence  as  their  capital,  and  so  long  as  they  hold 
this  they  may  continue  and  prosper.  Without  this  confi- 
dence the  capital  usually  controlled  by  a  dealer  would  be 
wholly  inadequate,  and  his  chances,  to  say  the  least,  would  be 
doubtful. 

Third.  It  is  of  great  importance  to  know  where  and  how  the 
applicant  obtained  his  capital.  If,  as  is  often  the  case,  he  is 
a  young  and  inexperienced  man,  with  little  ability,  and  is  set 
up  in  business  by  some  relative,  his  case  is  a  rather  precarious 
one.  "  There  is  no  end  of  the  money  behind  him,"  but  the 
end  is  not  long  in  being  reached,  as  many  men  have  learned 
to  their  sorrow.  It  is  seldom  long  before  the  capital-furnish- 
ing relative  becomes  solicitous  about  the  business,  and  must 
be  secured.  It  is  usually  arranged  in  the  beginning  that  the 
relative  is  not  to  lose,  no  matter  who  else  does.  As  a  matter 
of  fact  the  general  creditor  loses  everything,  and  about  the 
only  way  to  avoid  this  is  to  withhold  all  credit  favors. 

Fourth.  Another  class  is  when  money  has  been  inherited 
by  young  men,  or  has  otherwise  come  into  their  hands  without 
any  efforts  on  their  part.  In  regard  to  this  class  it  becomes 
a  question  of  the  ability,  honesty  and  experience  of  the  young 
man.  Until  he  establishes  some  reputation  as  to  his  business 
qualifications  and  demonstrates  that  these  are  being  judi- 
ciously combined  with  his  capital,  his  credit  could  not  with 
impunity  be  extended  beyond  his  bank  account. 

There  have  been  so  many  cases  of  this  kind  that  it  is  not  hard 
to  determine  their  status.  A  great  many  of  them  lose  all  their 


THE  ELEMENTS  OF  BUSINESS.  355 

capital  in  acquiring  the  necessary  experience.  The  experience 
and  preparation  for  the  work  should  be  obtained  before  the 
capital  is  used,  and  where  this  is  not  done  the  one  is  often  lost 
before  the  other  is  gained. 

Fifth.  Another,  and  by  far  the  better  class,  consists  of 
those  young  men  who  have  been  clerks,  and  have  gained  educa- 
tion and  experience,  and  by  hard  work  and  economical  habits 
have  accumulated  a  sufficient  capital  to  go  into  business  for 
themselves.  Such  a  one's  capital  has  a  double  value.  Every 
dollar  has  cost  him  not  only  labor,  but  probably  sacrifice  of 
personal  comforts.  He  has  demonstrated  his  ability  to  earn 
and  his  determination  to  save,  and  this  is  a  great  recommenda- 
tion. He  knows  the  value  of  money,  and  this  is  the  secret  of 
properly  spending  it.  These  may  be  considered  as  belonging 
to  the  better  class  of  debtors,  and  they  may  be  trusted  with 
any  reasonable  amount  of  money  or  goods. 

§  524.  Volume  of  Business.  First.  The  function  of 
money  is  to  facilitate  commerce  and  trade,  and  no  fault  can  be 
found  with  us,  as  a  business  community,  for  not  doing  busi- 
ness enough  in  proportion  to  our  capital.  We  do  rather  too 
much  for  our  own  safety.  In  fact,  the  tendency  to  do  business 
on  a  large  scale  may  be  said  to  be  one  of  the  evils  of  trade. 

We  receive  a  dollar  and  immediately  pay  it  out,  and  thus 
many  are  benefited.  "If  nothing  ever  occurred  to  check  the 
circulation  of  money  at  some  given  point,  then  we  might 
rightfully  claim  that  that  method  subserves  the  highest  pur- 
pose which  gives  it  the  largest  use  in  effecting  exchanges, 
either  for  past  or  present  transactions.  Exchanges  are  made, 
i.  e.,  goods  are  bought  and  sold,  on  the  theory  that  there  is  to 
be  profit  in  the  operations;  therefore,  the  more  transactions 
or  trades  that  a  dollar  enables  us  to  make  the  more  product- 
ive it  becomes,  and  the  greater  number  of  people  that  are 
benefited." 

But  experience  teaches  that  when  money  reaches  that  point 
where  exchanges  are  made  with  the  greatest  ease  and  without 


356  COMMERCIAL  CREDITS. 

friction,  the  condition  indicating  unlimited  confidence  and 
credit,  that  a  halt  may  be  looked  for  that  will  shake  com- 
merce from  center  to  circumference.  This  is  a  panic.  Now, 
every  panic  is  foreshadowed  by  inordinate  confidence  and 
enormous  speculation.  "The  limit  of  the  purchasing  power 
of  a  dollar  is  exceeded  and  ignored,  and  'promises  to  pay'  take 
its  place  largely;  and  along  the  whole  line  each  depends  on 
the  other  for  the  fulfillment  of  promises,  without  any  really 
tangible  basis."  The  only  security  for  such  promises,  either 
oral  or  written,  is  confidence,  and  the  makers  pay  if  they  can. 

Second.  In  times  of  great  speculation  people  seem  to  lose 
their  heads,  and  in  the  finaj  outcome  it  is  found  that  even  the 
most  conservative  are  often  involved.  All  is  prosperity  and 
confidence,  each  is  going  to  attain  wealth  in  a  few  months, 
when  lo  !  the  bubble  bursts  and  all  is  lost !  Every  one  en- 
gaged in  business  appears  to  know  that  commerce  is  governed 
by  inflexible  laws,  but  the  greed  for  gain  is  so  strong  that  it 
cannot  be  resisted,  and  men  stake  their  all  on  a  scheme — a 
veritable  confidence  game — that  promises  wealth  at  a  bound. 
Experience  and  knowledge  do  not  seem  to  profit  at  such  times 
until  it  is  too  late. 

To  succeed,  a  man  must  stick  to  one  thing  until  it  is  accom- 
plished. If  he  cannot  properly  conduct  business  in  one  line, 
where  is  the  foundation  for  the  belief  that  he  can  control 
two  ? 

Safety  and  conservatism  is  the  most  profitable,  as  may  be 
verified  by  the  many  successful  business  houses  that  are  to 
be  found  following  this  policy,  and  the  many  wrecks  that  are 
reported  from  week  to  week,  caused  by  the  opposite  policy. 

Third.  Inability  to  pay  one's  obligations  causes  bank- 
ruptcy, and  a  multiplicity  of  bankruptcies  occurring  simul- 
taneously constitute  a  commercial  crisis.  Commercial  crises 
recur  in  cycles  of  about  ten  years;  it  takes  about  that  long 
for  men  to  forget  the  perils  of  excessive  speculation.  The  fol- 
lowing are  some  of  the  more  important  panics  during  the  last 
century  : 


THE  ELEMENTS  OF  BUSINESS.  357 

At  Amsterdam,  caused  by  the  failure  of  the  house  of  de 
Neufville,  involving  77  failures,  1763. 

Crisis  of  1773  in  Holland,  causing  failures  aggregating 
$50,000,000  in  liabilities. 

The  Hamburg  crisis,  caused  by  the  French  occupation  of 
Holland  in  1795,  which  gave  to  the  former  command  of  the 
continental  trade,  causing  such  speculation  and  rise  of  prices 
that  the  crash  came  in  1799,  causing  82  failures,  involving 
$10,000,000. 

The  English  crisis  of  1816,  caused  by  misconception, 
founded  on  the  overthrow  of  Napoleon,  and  the  opening  of 
the  continent  of  Europe  to  British  trade.  When  the  miscal- 
culation was  discovered  6,6 1 6  firms  went  into  bankruptcy. 

The  mercantile  panic  at  Manchester,  England,  1825,  liabili- 
ties $10,000,000. 

The  panic  of  1837,  in  the  United  States  from  land  specula- 
tion, caused  the  failure  of  wild-cat  state  banks,  and  in  the 
same  year  in  England,  caused  by  wild  speculation  and  infla- 
tion of  the  credit  system. 

The  "railway  mania  of  1845"  caused  a  panic  in  England 
in  1847,  involving  over  $150,000,000. 

In  1857  occurred  the  mercantile  crisis  of  England  and  of 
the  United  States,  involving  7,200  failures  for  $560,000,000  in 
the  latter  country. 

In  1866  occurred  the  great  credit  panic  in  England,  partly 
caused  by  the  "limited  liability  company"  law  of  1862,  caus- 
ing a  panic  involving  $500,000,000.  The  houses  of  Overend 
&  Gurney,  and  Morton,  Peto  &  Co.,  went  down  in  this  crash. 

In  1873  the  general  speculative  panic  in  the  United  States, 
caused  by  investment  in  railway  bonds,  involving  $250,- 
ooo,  ooo. 

In  i  884  the  failure  of  the  Marine  Bank,  of  New  York  City, 
involving  several  firms  and  over  $25,000,000. 

Of  course  these  are  not  all  the  panics  which  have  occurred 
during  the  century,  but  we  have  cited  the  more  important 
ones  only. 


358  COMMERCIAL  CREDITS. 

The  greater  number  of  these  crises  were  precipitated  by 
over-confidence  and  over-credit,  and  what  has  caused  them 
will  cause  others.  Our  experience  in  this  direction  ought  to 
govern  our  actions  with  regard  to  future  probabilities.  There 
is  science  in  business,  though  in  this  country  few  seem  to 
realize  it-  "A  hap-hazard  method  is  always  conditioned 
upon  the  whims  of  chance,  and  success  is  not  its  legitimate 
offspring." 

Fourth.  It  would  not  be  possible  to  determine  the  amount 
of  business  that  can  be  safely  done  on  a  given  capital.  All 
the  surrounding  conditions  would  have  to  be  looked  into.  It  id 
safe,  however,  to  say  that  when  a  house  does  so  much  business 
that  it  cannot  pay  its  bills  promptly,  it  is  not  safe  to  extend 
credit  to  it. 

' '  Over-buying,  over-trading,  and  not  the  least,  over-trust- 
ing, are  the  greatest  evils  we  have  to  contend  with.  The 
only  rule  that  can  be  laid  down  to  guide  us  safely,  is  to  do 
all  the  business  we  can,  but  stop  short  of  the  point  when  the 
fulfillment  of  our  promise  is  dependent  upon  the  strict  ob- 
servance of  the  promise  of  others  to  us.  " 

In  other  words,  "we  must  keep  ourselves  in  condition  to 
meet  our  obligations,  whether  others  meet  theirs  or  not.  A 
merchant  is  not  compelled  by  this  rule,  to  have  the  cash  in 
the  bank  at  all  times  for  all  his  debts.  That  is  not  necessary. 
A  certain  percentage  of  accounts  and  assets  can  always  be 
relied  on  and  realized  from.  The  liabilities  should  be  kept 
within  the  limit  of  this  percentage,  leaving  the  balance  as  a 
surplus  or  as  the  representative  of  capital  invested." 

§  525.  Assets — Real  Estate.  First.  If  real  estate  is  clear 
and  unincumbered,  it  represents  the  best  class  of  assets  as  a 
basis  for  credit.  But  there  is  nearly  always  some  incumbrance 
on  it;  and  whether  this  be  great  or  small  it  renders  the  prop- 
erty unavailable  to  the  creditor  in  case  of  the  debtor's  failure. 
Even  when  real  estate  is  reported  as  clear,  the  debtor  usually 
obtains  money  on  it  before  making  an  assignment,  sometimes 


THE  ELEMENTS  OF  BUSINESS.  359 

with  the  hope,  perhaps,  of  bridging  over  the  chasm,  but  often 
to  save  it  from  the  wreck. 

Second.  But  one  thing  about  real  estate  is  that  it  cannot 
be  transferred,  or  mortgaged,  without  giving  notice  at.  once  to 
the  public.  All  records  of  this  nature  are  watched  by  the 
mercantile  agencies  and  reports  made  for  the  benefit  of  cred- 
itors. 

Third.  The  homestead  exemption  law,  with  its  attendant 
variation  of  appraisals,  renders  the  creditor's  equity  intangible. 
"Real  Estate  cannot,  therefore,  be  considered  a  part  of  the 
working  and  available  capital  of  the  business."  There  is 
some  benefit,  however,  as  it  makes  the  debtor  more  of  a  fixture, 
and  by  paying  no  rent  he  is  able  to  live  more  frugally. 

"The  credit  man  is  sometimes  misled  by  the  scheduling,  on 
the  part  of  his  customer,  of  storebuilding  as  a  part  of  his 
capital,  when  in  fact  it  is  used  conjointly  for  business  and 
dwelling  purposes,  which  brings  it  under  the  head  of  exemp- 
tions and  the  homestead  law." 

All  these  matters  have  their  weight,  and  should  be  fully 
considered  by  the  credit  man  about  to  extend  credit. 

§  526.  Assets — Accounts  and  Bills  Receivable.  First. 
The  fact  that  the  accounts  and  notes  of  many  bankrupt  con- 
cerns fail  to  be  collected  at  all  is  alarming.  One  is  likely  to 
think  that  the  deadbeats  have  been  having  their  own  way 
with  such  firms,  and  that  the  debtor  has  been  exceedingly 
generous  to  every  one  except  himself  and  those  he  owes. 

Making  an  estimate  of  this  class  of  assets,  we  may  say  that 
experience  has  demonstrated  that  we  may  expect  to  realize 
about  65  per  cent.  net.  There  being  no  rent,  clerk  hire,  or 
other  expenses  of  disposing  of  the  property,  this  kind  of  assets 
costs  less  to  convert  than  any  other,  and  if  the  dealer  has  used 
ordinary  discretion  in  trusting  out  his  goods  we  may  rely  on 
a  shrinkage  of  not  over  35  per  cent.  It  maybe  that  the 
owner  could  realize  a  much  larger  per  cent.,  but  the  debtors  of 
a  defunct  firm  are  never  anxious  to  pay — in  fact,  most  of  them 


360  COMMERCIAL  CREDITS. 

try  in  every  way  to  avoid  payment.  This  makes  the  receiver  s 
task  a  difficult  one,  and  much  of  the  proceeds  is  taken  up  in 
attorney's  fees  and  costs.  We  may  safely  calculate  then  on 
realizing  about  65  per  cent,  on  the  book  accounts  and  the 
bills  receivable  of  the  debtor  at  the  time  of  his  insolvency. 

Second.  If  a  man  determines  on  the  term  of  credit  he  can 
^ive,  and  then  sticks  firmly  to  that  basis,  even  though  he  may 
l;e  doing  twice  the  amount  of  business  as  his  working  capital 
would  seem  to  warrant,  he  is  all  right.  But  there  are  few 
men  who  will  carry  out  their  terms  and  make  the  buyer  pay 
at  the  time  he  has  promised  to  pay,  and  then  few  dealers 
seem  to  understand  the  importance  of  limiting  their  credit 
giving. 

Merchants  often  argue  that  if  they  pay  interest  on  over-due 
accounts  that  they  are  fulfilling  their  score  to  their  creditor. 
But  a  merchant  cannot  afford  to  loan  out  any  part  of  his 
working  capital  at  simple  interest.  He  must  turn  his  capital 
several  times  a  year  in  order  to  make  it  pay.  If  he  loans  his 
capital  for  6  per  cent.,  this  means  6  per  cent,  per  annum. 
Now  how  could  a  merchant  pay  the  expense  of  running  a  bus- 
iness on  6  per  cent,  per  annum  on  his  capital  ? 

The  following  from  Earling  will  illustrate  how  important  it 
is  for  a  merchant  to  make  his  customers  live  up  to  the  terms 
of  sale:  "If  a  merchant  has  a  capital  which  enables  him  to 
give  sixty  days'  time  and  still  discount  his  bills,  does  it  cut 
any  figure  or  interfere  with  his  discounting  his  bills  should  he 
be  compelled  to  give  ninety  days?  Most  certainly  it  would. 
He  would  have  tied  up  additional  capital  equal  to  thirty  days' 
sales,  which  would  not  be  available  to  him  in  time  to  discount 
his  own  bills  any  longer.  The  longer  the  time  that  is  given 
or  allowed  to  be  taken,  the  greater  will  be  the  proportion  of 
our  capital  made  unavailable.  Large  and  first-class  houses 
understand  this,  and  we  have  always  found  them  demanding 
punctuality  in  the  observance  of  terms.  A  firm  doing  a  busi- 
ness of  $1,000,000  a  raonth,  for  instance,  if  it  gives  sixty 


THE  ELEMENTS  OF  BUSINESS.  361 

days'  time,  means  that  $2,000,000  is  owing  to  it,  and  ninety 
days  would  mean  $3,000,000  outstanding.  Of  course,  more 
or  less  of  our  sales  are  discounted,  but  this  we  anticipate  in 
our  calculations  here  as  well  as  in  practice." 

Third.  No  matter  how  we  conduct  our  business  otherwise, 
our  safety  and  our  profit  depends  upon  the  relative  proportion 
of  our  capital  to  our  accounts  and  bills  receivable. 

Suppose  a  man  with  $100  is  doing  a  strictly  cash  business. 
If  he  can  find  buyers  he  can  turn  that  $100  every  day.  Now 
if  he  makes  ten  per  cent,  profit,  that  $100  will  earn  him 
$3, 1 30  a  year,  and  this  on  the  supposition  that  the  profit  is 
withdrawn  each  day  and  not  added  to  the  capital.  But  sup- 
pose he  sells  his  $100  worth  of  goods  on  four  months'  credit, 
now  he  can  turn  his  capital  only  three  times  during  the  year, 
and  his  profit  is  but  $30. 

If  a  house  has  sufficient  capital  to  do  a  banking  business 
in  connection  with  their  mercantile  business  it  may  give  in- 
definite time  and  carry  its  customers  as  long  as  they  are  will- 
ing to  pay  interest  ;  and  this  is  often  done.  Some  houses 
may  be  able  to  employ  their  surplus  capital  in  no  more 
profitable  way,  and  where  this  is  the  case  it  is  all  well  and 
good  ;  but  as  a  great  majority  of  dealers  have  only  enough 
capital  to  carry  their  business,  they  cannot  afford  to  have 
their  working  capital  tied  up. 

§527.  Assets- -Personal  Property  and  Stock.  First.  We 
come  now  to  the  debtor's  stock  of  merchandise  and  his  personal 
property.  In  closing  out  the  merchandise  and  converting  it 
into  cash  we  may  expect  to  realize  nearly  the  first  cost,  provid- 
ing the  goods  have  been  bought  judiciously  and  a  market  for 
them  can  be  found.  This  class  of  assets  is  considered,  by  the 
credit  man,  to  be  the  most  available  of  all  a  debtor's  property. 
But  while  it  brings  nearest  its  face  value,  yet  there  is  quite  a 
loss  in  the  process  of  converting  it. 

Usually  the  assignee's  sales  are  allowed  to  drag  and  con- 
tinue for  so  long  a  time  that  the  rent,  clerk  hire,  lawyer's  fees 


362  COMMERCIAL  CREDITS. 

and  other  items  cause  a  great  deal  of  expense.  It  sold  by 
driblets  the  expense  would  be  almost  as  much  as  the  receipts; 
but  if  the  whole  stock  is  sold  at  once  for  cash,  the  buyer 
nearly  always  names  his  own  price,  so  that  the  shrinkage  is 
considerable  in  either  case.  Of  the  two  ways,  the  latter,  is 
probably  the  best,  as  it  is  quickest  and  usually  most  profitable. 

Second.  So  we  see  that  in  case  of  a  failure  and  a  bank- 
rupt sale,  the  most  available  part  of  an  insolvent's  property  is 
subject  to  great  shrinkage,  and  by  the  time  it  is  converted 
I  into  cash  and  ready  to  divide  among  the  creditors  we  may 
?  count  on  a  loss  of  at  least  35  per  cent.,  leaving  65  per  cent, 
•to  be  realized.  In  taking  an  estimate  then  of  an  applicant's 
stock  in  trade,  we  are  not  justified  in  assuming  that  in  case  of 
failure,  we  may  be  able  to  realize  more  than  65  per  cent,  on 
the  purported  inventory  valuation.  And  this  is  a  fair  esti- 
mate— many  will  not  reach  it.  In  extending  credit  we  do  so 
under  the  supposition  that  the  debtor  is  going  to  fail  and  our 
estimate  of  his  property  must  be  made  on  that  contingency. 

Third.  In  estimating  the  property  of  a  manufacturing 
business  we  must  allow  a  much  larger  amount  for  shrinkage. 
Much  of  the  assets  will  consist  of  unfinished  articles,  and  these 
will  bring  even  less  than  the  raw  material  out  of  which  they 
were  made.  The  estimated  value  of  such  goods  is  merely 
nominal. 

With  the  manufactured  articles,  their  conversion  into  cash 
depends  on  circumstances.  If  they  must  be  sold  at  a  forced 
sale  the  loss  will  be  great,  and  if  they  are  seasonable  goods 
and  must  be  sold  out  of  their  season,  the  loss  will  be  still 
greater.  In  the  case  of  raw  material,  this  will  bring  nearly 
market  value.  The  tools,  machinery,  fixtures,  etc.,  cannot  be 
counted  on  for  much;  second-hand  machinery  is  worth  but  a 
small  part  of  its  first  cost.  We  cannot  sell  it  unless  a  buyer 
who  wishes  to  carry  on  the  business,  can  be  found,  and  this 
is  not  probable.  This  being  the  case,  manufacturers  usually 
name  their  own  terms  of  settlement. 


THE  ELEMENTS  OF  BUSINESS.  363 

In  closing  out  a  stock  of  a  manufacturer,  then,  we  would 
not  realize  over  35  per  cent.,  and  this  is  a  fair  estimate.  We 
see  from  this  that  in  making  credits  we  must  discriminate  be- 
tween the  different  lines  of  business. 

v$  528.  Liabilities.  First.  In  order  to  make  a  proper 
estimate  of  a  debtor's  probability  of  paying  his  debts  we  must 
know  how  his  liabilities  compare  with  his  capital.  To  take  a 
case  in  which  the  liabilities  are  equal  to  the  capital  is  to  pre- 
suppose a  case  of  insolvency,  and  yet  there  are  many  such— 
and  they  seem  to  enjoy  good  credit  too.  But  in  cases  of  this 
kind  there  is  always  a  halt;  the  creditor  at  last  demands  pay- 
ment and  the  collapse  comes;  we  are  then  lucky  to  get  fifty 
cents  on  the  dollar  of  our  account. 

A  man's  resources  may  not  grow  so  very  fast,  but  the  liabil- 
ities of  a  man  who  is  already  near  insolvency,  grow  with  won- 
derful alacrity.  And  the  reason  is  easy  to  deduce.  Such  a 
one  must  buy  on  credit  and  long  time,  and  is,  therefore,  not 
able  to  obtain  any  "bargains,"  and  besides  he  must  pay  the 
highest  prices  for  everything.  But  the  one  who  is  able  to  pay 
cash,  gathers  up  all  the  bargains,  and  thus  while  the  one  is 
becoming  wealthy  the  other  is  being  reduced  to  insolvency. 

Second.  But  loss  of  confidence  and  credit  is  not  the  only 
loss  experienced  by  the  man  whose  accounts  and  bills  payable 
are  out  of  proportion  to  his  capital.  "The  constant  worry 
attendant  upon  this  condition,  the  efforts  made  to  turn  a  cor- 
ner here  and  there,  the  figuring  and  conniving  required  to  pull 
through,  all  these  things  engage  his  mind  and  time,  and  with- 
draw his  labor  from  its  legitimate  functions." 

Such  men  will  hang  on  with  rare  persistence  long  after 
there  is  no  hope  of  success.  They  expect  something  to  "turn 
up,"  and  though  they  may  turn  another  corner  or  two,  the 
result  is  inevitable.  The  collapse  comes,  and  all  concerned 
agree  that  it  would  have  been  much  better  had  it  come  sooner. 
The  creditor  has  lost  money  and  the  debtor  has  lost  time,  by 
the  delay. 


364  COMMERCIAL  CREDITS. 

The  only  general  rule  regarding  the  proportion  of  liabilities 
to  capital  is  to  keep  the  indebtedness  within  the  limits  of 
positive  ability  to  pay.  If  a  man  does  this  he  is  safe  and 
entitled  to  credit  to  the  extent  of  ordinary  business  wants. 
The  man  who  does  not  is  entitled  to  little  or  no  favors  that 
will  jeopardize  our  property. 

§529.  Insurance.  First,  If  a  man  is  not  concerned  about 
the  safety  of  his  property  enough  to  keep  it  insured,  he  is  not 
entitled  to  credit.  If  the  rates  of  insurance  are  high  all  the 
more  reason  for  being  insured — the  risk  must  be  greater. 
Even  if  the  loss,  in  case  of  fire,  would  fall  entirely  on  the 
owner,  he  being  entirely  out  of  debt,  yet  it  is  a  violation  of 
good  business  principles  not  to  be  insured. 

"  The  good  business  man  has  for  his  motto  that  what  is 
worth  possessing  is  worth  insuring,  and  the  expense  should  be 
regarded  in  the  same  light  as  any  other  current  expense,  such 
as  heat,  light,  etc." 

We  have  to  do  with  the  merchant  who  owes  for  all  or  a 
large  part  of  his  goods,  and  "in  justice  to  his  creditors  he 
should  be  fully  insured;  in  fact,  be  insured  for  their  benefit 
directly.  It  is  a  safeguard,  and  one  which  every  creditor  has 
a  moral  right  to  exact  of  his  debtors." 

Second.  Large  real  estate  owners  and  syndicates,  and  rail- 
road companies,  do  not  generally  insure.  A  single  fire  would 
not  cause  them  as  much  loss  as  the  premium  would  amount 
to  on  the  whole  property.  In  other  words  they  become  their 
own  insurers.  But  a  merchant  cannot  do  this.  All  his  cap- 
ital is  located  in  one  place,  and  a  fire  would  mean  financial 
ruin,  and  to  avert  such  a  calamity,  the  prudent  man  always 
insures,  and  thus  protects  his  property,  and  often  that  of 
others,  from  loss.  From  the  creditor's  view  it  is  the  duty 
of  every  man  to  be  insured.  He  cannot,  of  course,  compel 
the  debtor  to  insure,  but  he  can  refuse  him  credit  unless  he  is 
insured.  A  man  who  cares  nothing  for  the  creditor's  safety  is 
not  Entitled  to  confidence  and  credit,  and  he  ought  not  to 
have  it. 


THE  ELE:UENTS  OF  BUSINESS.  365 

§  530.  Partnerships.  First.  Going  into  partnership  is 
one  of  the  most  important  things  of  a  man's  life.  Look  well 
to  the  antecedents  of  your  associate-to-be.  Years  of  toil  and 
accumulation  of  capital  are  sacrificed  by  being  associated  with 
a  dishonest  man,  who  has  neither  honor  nor  a  good  name  to 
lose.  Act  in  this  regard  with  great  care. 

In  considering  a  partnership  from  the  standpoint  of  a  credi- 
tor, we  wish  to  know  whether  it  is  a  good  one,  and  whether 
the  purpose  for  which  it  was  formed  is  being  accomplished. 
We  wish  also,  to  know  whether  the  partners  are  producers  or 
not.  Whether  they  earn  what  they  withdraw  from  the  busi- 
ness for  private  use,  or  whether  they  are  simply  consumers. 

Second.  Another  question  to  which  we  want  an  answer  is, 
whether  the  business  is  large  enough  to  support  two  families. 
Many  of  the  smaller  partnerships  are  prevented  from  rising 
owing  to  too  large  and  constant  a  drain  on  their  earnings  for 
family  support.  No  business  can  increase  and  succeed  unless 
there  is  a  chance  for  accumulation  of  capital  and  general 
growth.  It  cannot  stand  still  and  be  considered  in  a  healthy 
condition.  It  must  be  progressive  and  aggressive.  A  man 
must  not  only  earn  what  he  draws  from  the  business,  but  his 
ultimate  success  demands  that  he  draw  as  little  as  possible, 
so  as  to  admit  of  as  large  an  addition  to  his  capital  from  year 
to  year  as  possible. 

§  531.  Productive  or  Non-productive.  By  this  is  meant, 
are  the  proprietors  workers,  and  do  they  earn  their  daily 
wages.  "  If  the  proprietor  be  a  hard  working  man  himself, 
and  an  equivalent  is  rendered  to  the  business  in  services  for 
money  drawn  for  living  expenses,  the  conditions  may  be 
regarded  as  favorable  in  this  case.  But  if  the  reverse  is  true, 
and  the  proprietor  figures  that  the  business  owes  him  a  living 
without  any  equivalent  being  rendered  by  him,  thus  necessi- 
tating the  employment  of  help  and  the  paying  of  wages,  then 
the  conditions  must  be  regarded  as  unfavorable." 

If  a  man  has  a  trade  at  which  he  can  work  in  connection 
with  his  merchandising,  he  can  make  good  wages  and  does 


366  COMMERCIAL  CREDITS. 

not  have  to  depend  on  the  mercantile  part  of  his  business  for 
his  living  expenses.  And  if  he  has  good  habits  and  other 
qualifications,  he  is  a  good  risk,  even  though  his  capital  is 
only  nominal. 

But  the  one  who  does  not  earn  his  own  expenses,  but  hires 
the  work  done  which  he  ought  to  do,  cannot  be  considered  as 
being  a  safe  risk.  In  the  first  place,  men  who  succeed  are 
always  workers;  and,  besides,  one  who  does  not  work  will 
always  have  more  personal  expenses,  owing  to  the  associates 
he  is  sure  to  have,  than  one  who  keeps  busy. 

While  these  points  may  not  always  be  considered  in  this 
connection,  yet  the  careful  credit  man  does  not  ignore  them. 

§532.  Corporations.  First.  The  formation  of  corporate 
bodies  for  the  purpose  of  railroading,  manufacturing,  banking, 
etc.,  has  been  a  public  benefaction.  The  corporation  law  has 
enabled  these  large  concerns  to  establish  these  extensive  en- 
terprises, the  existence  of  which  would  have  been  utterly  im- 
possible if  the  enormous  capital  required  had  to  be  contributed 
by  a  few  persons.  The  whole  country  is  interested  in  public 
improvements,  and  these  companies  have  rendered  a  benefit 
that  is  unquestionable.  No  partnership  could  have  com- 
manded enough  capital  to  have  built  the  large  railroads  or 
equipped  the  immense  factories  and  financial  institutions  of 
the  present  day. 

Second.  But  what  we  have  to  do  here  with  these  corpora- 
tions, co-operative  associations  and  joint-stock  companies,  is 
the  non-liability  of  the  shareholders. .  While  they  enable 
many  to  contribute  a  little  of  their  surplus  to  promote  some 
enterprise,  they  also  assure  the  contributor,  the  shareholder, 
that  by  legal  enactment  he  is  not  responsible  beyond  the 
amount  of  his  paid  up  stock.  In  a  partnership  or  individual 
business,  the  creditor  can  take  all  of  thed  ebtor'  s  property, 
except  what  is  exempt  by  law,  but  in  a  corporation  the  share- 
holder is  liable  only  to  the  extent  of  his  stock.  So  that  the 
credit  man  has  the  alleged  capital  stock  to  look  to,  and  if  this 


THE  ELEMENTS  CF  BUSINESS.  367 

is  lost  there  is  no  other  recourse.  "  There  is  no  moral  status, 
no  individual  integrity  back  of  it." 

Credit  may  be  given  to  individuals  up  to  their  probability 
to  pay,  with  a  proper  consideration  of  their  business  qualifi- 
cations. But  credit  is  due  to  corporations  only  to  the  extent 
of  their  paid  up  capital.  With  individuals  they  are  bound 
during  their  life  time  to  pay  us,  but  when  a  company  fails  it 
ceases  to  exist,  and  the  creditor  must  suffer  the  loss. 

Third.  In  forming  large  enterprises,  as  we  have  already 
explained,  the  corporation  law  is  a  great  benefit,  "  but  when,  as 
in  late  years,  the  stock-company  plan  has  found  adoption  by 
all  kinds  of  enterprises,  with  capital  ranging  from  $1,000 
upward,  we  are  constrained  to  inquire  into  the  purpose  and 
motives  of  such  organizations.  To  organize  a  stock-company 
for  carrying  on  a  small  mercantile  business  with  $2,000  capi- 
tal, more  or  less,  can  hardly  find  justification  on  the  grounds 
of  any  advantage  to  business  in  any  sense." 

But  there  is  usually  some  personal  reasons  for  such  a  move. 
These  small  concerns  are  usually  in  the  control  of  one 
man,  who  owns  most,  if  not  all,  the  stock.  It  will  also  be 
found  that  he  has  reasons  for  not  going  into  business  in  his 
own  name.  There  is  probably  some  unsatisfied  judgment, 
claims,  or  business  embarrassments  that  hinder  him,  but  the 
stock-company  furnishes  a  way  for  opening  up  business  with- 
out fear  of  his  old  creditors. 

In  such  cases  the  credit  man  ought  to  be  very  cautious 
how  he  extends  his  favors.  A  study  of  the  manager's 
character  will  determine  the  "character"  of  the  company. 

Fourth.  Of  course  there  are  bona  fide  companies  formed 
for  small  manufacturing  enterprises,  etc.,  with  small  capital, 
but  they  frequently  have  poor  management  and  after  a  great 
deal  of  wrangling  for  a  year  or  so,  they  "go  under"  or  pass 
into  other  hands. 

There  is  no  advantage  in  small  corporations,  nor  in  the 
incorporation  of  a  firm  whose  reputation  is  not  yet  established. 


368  COMMERCIAL  CREDITS. 

An  old  and  well  established  firm  that  already  posesses  the 
confidence  of  the  community  may  do  better  business  as  a 
stock-company. 

Of  course,  in  making  a  proper  estimate  on  these,  the  credit 
man  must  consider  the  amount  of  capital  stock,  the  nature  of 
the  business,  etc.,  before  he  could  determine  the  limit  of 
credit. 

§  533.  Chattel  Mortgages.  First.  It  often  happens  in 
looking  up  a  man's  standing  that  we  find  there  is  a  chattel 
mortgage  on  his  stock  of  goods;  or  a  dealer  whom  we  have 
already  trusted  places  a  mortgage  on  his  stock.  This  is  a 
virtual  admission  of  insolvency,  and  final  failure,  and  no 
credit  can  be  safely  given  in  such  a  case. 

The  mercantile  agencies  have  of  late  years  been  very  dili- 
gent in  watching  the  records,  and  reporting  all  chattel  and 
other  mortgages  to  their  patrons.  It  is,  therefore,  considered 
equivalent  to  bankruptcy  for  a  man  to  place  a  chattel  mort- 
gage on  his  stock,  for  all  his  creditors  will  hear  of  it  at  once 
and  be  demanding  an  immediate  settlement,  and  the  man 
who  has  found  it  necessary  to  chattel-mortgage  his  stock  "is 
never  in  condition  to  stand  a  run." 

Many  dealers  chattel-mortgage  their  stock  to  relieve  them 
temporarily  of  some  embarrassment,  never  thinking  of  the 
effect  it  will  have  on  the  minds  of  their  creditors.  Perhaps 
many  of  them  think  that  the  creditors  will  never  know  about 
it,  forgetting,  if  perchance  they  ever  knew,  that  records  of 
such  transactions  are  at  once  reported  to  the  whole  business 
community. 

Second.  If  the  dealer  had  a  judgment  recorded  against 
him  no  one  would  give  him  credit,  but  a  mortgage  is  just  as 
bad.  A  judgment  can  be  satisfied  only  by  an  execution  and 
levy  on  his  property,  if  any  can  be  found,  but  a  mortgage  is 
already  satisfied  and  no  execution  is  necessary.  A  chattel 
mortgage  is,  therefore,  worse  than  a  judgment,  except  that  in 
case  of  the  former  arrangements  may  be  made  for  allowing  the 


THE  ELEMENTS  OF  Busr  369 

debtor  to  continue  in  business  as  long  as  the  conditions  of  the 
mortgage  are  carried  out,  while  in  case  of  a  judgment  the 
creditor  is  always  watching  for  property  to  satisfy  his  claim. 

To  extend  credit  in  such  cases  is  to  invite  loss  and  to 
throw  your  property  away  of  your  own  free  will.  This  is  not 
the  purpose  of  business  men.  But  all  such  dealers  manage 
to  get  credit  somewhere,  though  it  is  a  mystery  why  houses 
will  cater  to  such  hazardous  trade.  It  must  be  that  they 
themselves  are  ignorant  of  the  conditions  which  are  necessary 
to  success.  The  less  a  house  has  to  do  with  a  chattel-mort- 
gaged dealer  the  better — unless  it  has  the  mortgage. 

§  534-  Various  Kinds  of  Dealers.  First.  A  man  who  is  not 
particular  about  the  price  he  pays,  but  is  sure  to  want  the 
longest  time,  is  not  a  fit  person  to  trust.  In  this  age  of  close 
competition,  no  dealer  can  succeed  who  cares  neither  how 
much  he  buys  nor  what  he  pays.  Recklessness  is  no  indica- 
tion of  success — it  points  to  ultimate  failure  instead. 

Second.  It  is  a  pleasure  to  deal  with  the  "live-and-let-live 
buyer,"  and  the  man  who  knows  what  he  wants.  He  knows 
what  he  wants  and  what  he  can  sell,  and  is  informed  on  the 
value  of  goods  and  is  willing  to  give  value  for  them.  He  is 
not  inclined  to  "haggle."  He  either  takes  the  goods,  or  he 
does  not.  This  refers  to  the  better  class  of  merchants. 

Third.  We  come  now  to  the  troublesome  person  known 
as  the  "crank."  We  find  cranks  in  this  as  in  every  other 
calling.  "Business  houses,  and  their  salesmen  in  particular, 
are  not  long  in  finding  him  out,  and  after  he  is  once  'stamped 
and  labeled,'  we  know  about  how  to  handle  him,  and  save 
ourselves  much  annoyance.  He  is  labeled  all  the  way  through, 
from  the  office  to  the  shipping-room.  Opposite  his  name  on 
the  ledger  is  marked  'crank.'  Except  by  special  request  no 
'monthly  statement'  is  to  be  mailed  to  him.  The  chances 
are  that  he  has  a  special  grudge  against  statements,  and  we 
are  generally  made  aware  of  this  peculiarity  of  his  after  the 
first  round.  His  orders  we  mark  'crank'  when  we  send  then? 


37o  COMMERCIAL  CREDITS. 

to  the  shippers.  This  is  done  to  insure  extraordinary  care  in 
filling  them  to  the  letter.  Changes  of  quantities  or  the  ordi- 
nary substitutions  are  not  permissible  in  his  case.  To  ship 
him  a  quarter  of  a  dozen  rather  than  to  break  a  package  for  a 
sixth  of  a  dozen  as  ordered,  or  to  substitute  even  a  better 
article  than  the  one  mentioned,  are  liberties  which  will  cost 
you  return  freight  charges,  and  entitle  you  to  a  liberal  round 
of  abuse  besides.  He  seems  to  live  for,  and  to  have  a  special 
aptitude  in  the  direction  of  finding  fault  with  things."  He  is 
never  satisfied  with  either  terms  or  prices  and  keeps  one  in  hot 
water  all  the  time.  But  while  he  is  disagreeable  he  does  not 
ask  favors  in  the  way  of  credit.  He  always  meets  his  engage- 
ments promptly  and  usually  takes  advantage  of  all  the  dis- 
counts for  prompt  cash.  He  seldom  fails  and  if  his  fault 
finding  can  be  tolerated  his  trade  is  profitable. 

Fourth.  Another  class  of  dealers  are  those  who,  after  a 
refusal  on  our  part  to  trust  them  with  our  goods,  owing  to 
their  ratings  or  other  causes,  write  to  us  and  try  to  argue  their 
claims  for  credit,  and  making  all  manner  of  claims  as  to  their 
intention  of  paying  their  debts.  If  we  change  our  mind  and 
give  them  favors,  ten  to  one  we  will  subsequently  regret  it. 
The  man  who  is  able  and  willing  to  pay  does  not  have  to  beg 
for  credit,  and  he  will  waste  neither  time  nor  stationery  on 
you. 

Another  case  is  the  man  who  sends  an  order,  without 
solicitation,  to  a  firm  who  is  entirely  out  of  his  proper  field. 
There  are  other  towns  and  dealers  nearer  to  him,  and  who 
should  get  his  trade  if  it  was  worth  having,  and  his  credit 
must  be  at  a  low  ebb  in  his  own  community  that  he  is  now 
seeking  favors  outside.  Besides,  in  these  times  of  "  scramb- 
ling" for  custom,  orders  that  are  worth  having  do  not  come 
unsolicited.  Such  cases  must  be  thoroughly  understood  to 
insure  safety. 

§  535.  Doubtful  Credits.  First.  Now  it  happens  that 
there  are  many  cases  that,  after  all  considerations,  it  is  almost 


THE  ELEMENTS  OF  BUSINESS.  371 

impossible  to  decide  whether  the  applicant  is  entitled  to  credit 
or  not.  A  good  way  to  decide  these  cases  is  to  consider  the 
credit  you  are  about  to  give  as  a  cash  loan.  Many  look  upon 
merchandise  as  something  different  from  cash,  and  that  it  must 
be  kept  moving. 

Another  and  probably  just  as  good  a  method,  is  to  take  the 
benefit  of  the  doubt  and  keep  the  goods  on  our  shelves.  This 
is  the  safest  and  probably  the  most  business-like  method  to 
adopt.  There  are  usually  plenty  of  safe  customers,  and  the 
doubtful  ones  are  too  hazardous  anyway. 

If  we  take  five  doubtful  credits  for  $500  each,  it  is  most 
certain,  or  at  least  very  probable,  that  one  of  them  will  prove 
a  loss.  This  does  not  leave  much  margin.  The  question 
then  is  whether  it  will  pay  to  sell  $2,500  worth  of  goods,  with 
a  certainty  of  losing  $500,  and  a  strong  probability  of  losing 
$1,000. 

Second.  Mr.  Earling  sums  up  doubtful  credits  in  this  way: 
"Experience  proves  that  in  cases  where  the  conditions  and 
surroundings  appear  in  every  way  favorable  and  satisfactory, 
the  losses  are  quite  large  enough  without  taking  chances 
knowingly.  How  much  or  how  little  risk  we  are  warranted 
in  taking  will  naturally  be  governed  by  the  per  cent,  of  profit 
we  expect  to  realize  in  a  given  transaction.  On  a  basis  of 
profit  that  would  net  us  as  merchants  only  six  per  cent,  per 
annum  on  the  capital  invested,  the  credit  system  of  the  coun- 
try would  be  restricted  to  less  than  one-quarter  of  its  present 
volume.  Mercantile  credits  would  be  placed  more  nearly  on 
a  footing  with  bank  credits.  To  make  ten,  or  twelve,  or 
twenty  per  cent,  on  our  capital,  however,  offers  temptation 
and  inducement  to  take  proportionate  risks.  'The  larger  the 
interest  the  poorer  the  security,'  is  an  old  maxim  well  un- 
derstood by  money-lenders." 

There  is  enough  loss  on  first-class  risks,  so  experience 
teaches,  without  taking  extra  hazards.  A  successful  Chicago 
merchant  had  the  right  idea  when  he  said  :  "There  is  plenty 
of  gocd  trade  to  be  had,  and  I  will  have  that,  or  none." 


CHAPTER  V. 


ANALYSIS  OF  MERCANTILE  REPORTS. 


§536.  Analysis  of  a  report. 

1.  Two  propositions. 

2.  A  case  with  assets  and  lia- 

bilities equal. 

3.  The  limit  of  credit. 

537.  Mercantile   Report   No,   i,    and 

analysis. 

538.  Mercantile  Report    No.   2,   and 

analysis. 


§539-   Mercantile   Report   No.  3, 
analysis. 

540.  Mercantile  Report  No.  4. 

541.  Mercantile  Report  No.  5. 

542.  Mercantile  Report  No;  6. 

543.  Mercantile  Report  No.  7. 

544.  Mercantile  Report  No.  8. 

545.  Mercantile  Report  No.  9. 


and 


§  536.  Analysis  of  a  Report.  First.  "  The  limit  of  credit 
in  any  given  case  must  be  governed  by  things  outside  the 
actual  capital  invested  nearly  as  much  as  by  the  capital  itself. 
No  two  cases  could  be  judged  alike  in  this  respect,  though  the 
capital  might  be  the  same  in  both.  We  should  have  to  take 
into  account  all  the  surroundings  and  facts,  as  required  by  our 
analysis  of  men  and  things,  and  this  procedure  would  neces- 
sarily give  us  more  latitude  in  one  case  than  in  another,  irre- 
spective of  pecuniary  resources. 

"But  all  things  have  a  starting  point,"  and  we  will  com- 
mence by  stating  two  propositions  : 

First,  we  know  that  the  man  whose  capital  is  sufficient 
to  enable  him  to  buy  for  cash,  and  who  owns  all  his  stock, 
accounts,  etc.,  free  of  incumbrance,  is  safe.  In  selling  to  him 
we  have  nothing  to  fear  from  failure;  he  owes  nothing,  and 
cannot  fail.  The  only  risk  we  might  incur  in  selling  to  him 
would  come  from  his  dishonesty,  and  not  from  his  inability  to 
pay  or  his  lack  of  capital. 


ANALYSIS  OF  COMMERCIAL  REPORTS.  373 

Second,  if  a  man's  liability  is  equal  to  his  capital,  he  is  not 
safe,  and  the  point  is  reached  where  the  credit  man's  money 
is  jeopardized.  We  need  not  suppose  a  worse  case  than  this, 
even  for  the  sake  of  argument. 

Second.  "We  establish  a  middle  ground  between  the  two 
propositions,  namely,  between  absolute  safety  and  the  point 
where  safety  no  longer  exists.  The  first  proposition  needs  no 
explanation  or  argument,  and  the  credit  man's  task  is  made 
easy.  But  how  far  may  we  with  safety  depart  from  the  cash 
basis?  That  we  must  keep  inside  the  limit  of  the  second 
proposition  is  also  unquestioned.  We  have,  to  be  sure,  assets, 
consisting  of  stock,  accounts,  etc.,  aggregating  in  all  $10,000, 
and  we  will  say  that  these  assets  consist  of  half  of  merchandise 
and  half  of  accounts  and  bills  receivable.  The  liabilities  we 
will  suppose  to  be  of  equal  amount,  $10,000.  We  are  here 
supposing  by  no  means  an  exceptional  or  aggravated  case. 
There  is  quite  a  percentage  of  business  carried  on  with  no 
better  status  than  that,  and,  as  in  this  case,  where  absolutely 
no  capital  is  visible.  To  the  experienced  credit  man  the  case 
is  a  hopeless  one  for  both  the  debtor  and  the  creditor,  because 
it  is  inevitable  that  the  business,  sooner  or  later — and  the 
sooner  the  better — must  be  closed  up.  Then,  what  would  be 
our  reasonable  expectation?  No  business  man  would  expect 
the  estate  to  pay  dollar  for  dollar,  surely.  Even  under  favor- 
able circumstances,  and  with  a  good  business  man  for  assignee 
or  receiver,  the  assets  would  not  net  the  creditors  over  $6,500, 
or  65  per  cent,  of  their  claims,  as  this  is  considered  a  liberal 
estimate  under  an  assignment. 

TJiird.  "  What,  then,  would  have  to  be  our  limit  of  credit 
to  keep  within  the  bounds  of  safety?  On  the  supposition, 
justified  by  experience,  that  the  assets  of  a  mercantile  firm, 
in  the  event  of  foreclosure  or  assignee's  sale,  do  not  amount 
to  over  65  per  cent.,  the  limit  of  credit,  to  insure  us  dollar 
for  dollar,  must  be  fixed  at  65  per  cent,  of  the  inventory 
value  of  the  assets.  In  the  case  we  have  assumed,  $10,000 


374  COMMERCIAL  CREDITS. 

assets  would  pay  liabilities  of  $6,  500,  and  this  amount  must 
be  established  as  the  limit,  and  in  all  cases  this  relative  pro- 
portion should  be  maintained.  The  shrinkage  of  35  per 
cent,  represents  the  capital  invested,  but  creditors  are  paid 
in  full,  and  this  is  as  it  should  be.  The  man  who  embarks 
in  business  is  supposed  to  risk  his  capital,  and  not  ours,  in 
the  enterprise,  and  in  case  of  loss  or  failure,  we,  as  prudent 
business  men,  should  look  to  it  that  there  is  sufficient  margin 
represented  by  capital  to  provide  for  emergencies."*  We 
have  already  seen  that  the  nature  of  the  assets  needs  to  be 
considered,  and  the  probable  shrinkage  calculated  according 
to  their  value  and  convertibility.  Comments  in  regard  to 
these  may  be  found  by  referring  to  §§  525-527. 

§  537.     Mercantile  Report  No.  i. 

J.  R.  Green.  Town  of  4,000,  Michigan. 

Stoves,  Hardware,  and  Tin-shop. 

(Aug.  23,  1892.) 

"  Has  just  started  in.  Is  a  well  appearing  man  of  twenty- 
seven  years;  married.  His  character  is  reputed  good  and 
habits  steady.  Is  honest  and  punctual,  and  is  well  liked. 
He  expects  to  carry  a  stock  of  about  $2,500,  and  claims  to 
have  saved  $1,200  out  of  his  salary  while  at  work  for  Jacobson 
&  Co.,  for  whom  he  worked  for  eight  years.  A  well  known 
stove  house  and  a  hardware  firm  have  offered  to  carry  him 
for  from  $1,000  to  $1,500.  He  has  no  competitor  here,  and 
his  outlook  is  good.  He  is  not  a  practical  tinner  but  is  able 
to  do  some  work  at  the  bench  if  necessary." 

ANALYSIS. 

We  have  here  all  the  requisites  to  a  successful  business 
career.  The  fact  that  two  good  houses  have  agreed  to  give 
him  credit  is  an  indication  that  they  think  well  of  him  from  a 
personal  stand  point.  And  for  all  ordinary  business  wants 
he  is  a  good  risk.  His  capital  is  small  but  it  represents  the 
result  of  his  own  labor  and  frugality.  His  past  experience 

*  "Whom  to  Trust,"  by  P.  R,  Earling: 


ANALYSIS  OF  COMMERCIAL  REPORTS.  375 

and  present  risk  are  enough  to  make  him  careful  in  his  man- 
agement. 

Another  phase  to  be  considered  in  the  case  is  that  he  has 
never  managed  business  for  himself,  and  there  is  some  risk  in 
the  direction  of  what  his  development  will  be.  There  is  a 
very  great  difference  between  managing  a  business  and  work- 
ing for  some  one  else.  A  good  workman  is  not  necessarily  a 
good  manager,  and  we  have  record  of  many  failures  from  just 
such  cases.  To  be  one's  own  ''boss"  is  often  disastrous. 
Other  conditions  being  favorable,  however,  we  will  be  justi- 
fied in  taking  chances  on  this  one  element  of  doubt,  and  grant 
any  reasonable  credit. 

§  538.     Mercantile  Report  No.  2. 

B.  H.  Hanna.  St.  Louis,  Mo. 

Groceries. 

(Apr.  7,  1892.) 

"Has  been  in  business  here  since  1880.  Is  forty-four  years 
of  age  and  has  two  sons,  aged  fifteen  and  eighteen,  respec- 
tively, who  help  in  the  store.  Has  two  other  clerks.  His 
character  and  habits  are  good,  and  he  is  reputed  honest  and 
upright.  He  is  a  hard  worker  and  he  attends  strictly  to  his 
own  business.  His  capital  when  starting  was  $600,  which  he 
claims  he  saved  from  his  salary  while  clerking  in  a  grocery 
store  in  New  Jersey,  whence  he  came.  His  inventory  taken 
Jan.  ist,  is  as  follows  : 

ASSETS. 

Stock .- $12,500 

Accounts  receivable 6,000 

Bills  receivable —      1,500 

Homestead -_ -• 3, 500 

Other  real  estate -_      1,100 

Other  personal  property i  ,400 

Total   assets $26,000 

LIABILITIES. 

Accounts  payable  (on  stock) 

Bills  payable  (on  real  estate) _ 600 

Total  liabilities . .  $  6,  j  oo 


376  COMMERCIAL  CREDITS. 

"  He  carries  insurance  on  stock  $9,400 ;  on  homestead 
$2,000  ;  on  personal  property  $600.  Good  local  authorities 
state  that  they  have  never  heard  any  complaint  as  to  his 
manner  of  payment.  He  states  that  his  sales  last  year 
amounted  to  a  little  less  than  $56,000," 

ANALYSIS. 

This  is  not  a  difficult  case  to  decide.  He  has  built  up  a 
lucrative  business,  and  this  is  no  doubt  due  to  a  combination 
of  ability,  industry,  economy  and  intelligent  management. 
His  available  assets  are  $21,400.  He  owes  on  this  $5,500, 
and  would,  therefore,  be  safe  for  from  $12,000  to  $15,000. 
His  accounts  receivable  is  in  good  proportion  to  the  volume 
of  business,  and  shows  that  he  has  not  more  than  two  months' 
sales  outstanding,  which  indicates  that  he  attends  strictly 
to  his  collections.  The  accounts  not  being  of  long  standing 
we  infer  that  they  are  collectible.  The  volume  of  business 
in  proportion  to  capital  indicates  prudence  and  conservatism; 
many  men  with  the  same  capital  would  attempt  to  do  more 
business. 

As  for  his  antecedents,  his  record  while  here  is  sufficient. 

As  for  experience,  education,  ability,  mortgages,  partner- 
ships, etc. ,  the  report  answers  all  these  inferentially. 

His  methods  of  doing  business  are  all  that  can  be  required, 
and  the  fact  that  he  has  his  property  all  insured  indicates 
that  he  looks  after  his  own  interests  properly.  He  is  good 
for  his  business  requirements,  and  is  entitled  to  credit  to  the 
full  limit,  which,  owing  to  his  prudence,  he  will  not  ask. 

§  539.     Mercantile  Report  No.  3. 

L.  A.  Smith  &  Co.  General  Store. 

Town  of  1,500  in  Iowa. 

(May  2,  1892.) 

44  Smith  has  been  in  business  here  since  1883;  was  formerly 
a  printer.  Is  twenty-nine  years  old;  married.  The  "  Co." 
is  represented  by  M.  H.  Piper,  who  w?s  taken  into  the  busi- 
ness in  1890.  At  that  time  Smith  was  in  an  embarrassed 


ANALYSIS  PK  MERCANTILE  REPORTS.  377 

condition,  and  Piper  bought  a  half  interest  for  $3,000  in  cash, 
and  put  the  business  on  a  solid  foundation  again.  Piper  is 
twenty-three  years  old  and  inherited  all  his  money,  some  $10,- 
ooo,  from  a  deceased  uncle.  Piper  is  not  married,  and  his 
character  and  habits  are  bad.  He  has  no  notion  of  the  value 
of  money,  and  it  is  said  that  by  personal  extravagance  he  has 
nearly  run  through  with  the  remainder  of  his  inheritance. 
Both  he  and  Smith  are  poor  managers. 

"They  refuse  to  give  statement  of  their  condition,  and  say 
that  their  business  is  on  a  firm  foundation  and  that  trade  is 
all  that  can  be  desired.  Good  local  authorities  think  the 
firm  is  worth  possibly  $6,000  or  $7,000.  Nothing  can  be 
learned  of  their  liabilities,  though  a  coal  dealer  claims  that  he 
is  unable  to  collect  a  coal  bill  of  $45;  and  it  is  understood 
that  a  Des  Moines  house  has  refused  them  credit." 

ANALYSIS. 

Under  character,  habits,  capital,  antecedents  and  economy, 
this  case  can  be  easily  disposed  of.  Smith's  past  record  is 
not  encouraging,  and  the  fact  that  he  was  about  to  fail  when 
Piper  was  admitted  to  the  business  would  indicate  that  we 
must  look  to  the  latter  for  ultimate  success.  Piper's  condi- 
tion is  anything  but  favorable.  In  the  first  place  the  report 
infers  that  he  is  not  industrious  or  attentive  to  business,  and 
he  is  therefore  not  a  producer.  His  capital  is  all  a  gift  and  his 
extravagance  is  enough  to  condemn  him  as  a  business  man. 
As  soon  as  his  ready  money  is  gone  he  will  probably  begin  to 
spend  the  firm's  money.  The  fact  that  they  refuse  to  make 
any  statement  when  seeking  credit  accommodations  would 
infer  that  their  condition  is  not  what  it  should  be. 

This  is  one  of  these  doubtful  cases  in  which  we  should  take 
the  benefit  of  the  doubt  and  keep  our  goods  for  more  respon- 
sible buyers.  While  they  may  be  good  just  now  for  a  small 
accommodation,  yet  it  is  probably  only  a  question  of  a  little 
time  until  they  fail.  And  in  case  of  failure  we  may  conclude 
that  the  creditors  will  get  a  very  small  portion  of  their  claims, 


378  COMMERCIAL  CREDITS. 

as  the  firm's  liabilities  are  probably  already  too  large,  as  evi- 
denced by  their  refusal  to  give  a  statement. 

^  540.  Mercantile  Report  No.  4.  The  analysis  to  the 
three  reports  already  given  will  give  the  reader  a  good  idea 
of  the  usual  manner  of  examining  a  report,  and  the  line  of 
reasoning  to  arrive  at  a  decision.  We  will  now  give  several 
reports,  without  analysis,  for  practice  for  the  student  who 
wishes  to  become  more  proficient  in  the  science  of  credit 
making.  All  these  reports  were  actually  received  during  the 
course  of  business,  and  they  are  changed  in  names  and  amounts 
only,  so  as  to  elude  identification. 

J.  L.  Stouder.  Furniture  and  Notions, 

Town  of  12,000,  Nebraska. 

(Aug.  25,  1892.) 

"  Just  starting  in  business,  and  a  stranger  here.  He  makes 
the  following  statement:  'Have  been  in  the  sewing  machine 
business  for  the  past  ten  years  and  made  some  money,  which 
I  invested  in  real  estate  in  the  town  I  came  from.  Property 
consists  of  storebuilding  and  lot,  worth  $10,000.  Mortgaged 
for  $2,500.  I  am  going  to  sell  this  property  as  soon  as  I  can 
and  use  the  money  in  the  business.  Have  no  other  property 
except  household  goods.  I  intend  carrying  a  stock  of  $1,500.' 

"  Was  formerly  located  at  A—  — ,  and,  under  date  of 
Sept.  8,  1892,  it  was  learned  that  he  owns  a  storebuilding, 
but  not  worth  nearly  what  he  claims.  His  business  was  sell- 
ing machines,  and  these  were  sold  to  him  on  commission. 
Not  known  to  have  any  responsibility  beyond  his  equity  in 
real  estate.  Nothing  known  of  his  character  in  particular." 

^541.     Mercantile  Report  No.  5. 

Sam  B.  Smith.  Town  of  2,500  in  Iowa. 

General  Store. 

"Commenced  business  recently.  Age  twenty-two;  single. 
For  several  years  brakeman  on  railroad.  Previous  to  that  he 
was  in  a  store  for  a  short  time.  He  has  no  means  of  his  own 


ANALYSIS  OK  MERCANTILE  REPORTS.  379 

to  speak  of.  His  mother  is  quite  well  off,  and  the  capital 
comes  from  this  source.  Calculates  to  carry  small  stock,  from 
$1,800  to  $2,000.  He  states  that  his  mother  will  put  in 
$2,000  for  him  as  fast  as  the  business  warrants.  Is  a  sober, 
industrious  boy,  attentive  to  business,  and  family  well  re- 
garded. His  purchases  so  far  amount  to  $1,200.  Paid  cash 
$800,  balance  bought  on  credit." 

§  542.     Mercantile  Report  No.  6. 

J.  F.  Halloway.  Town  of  1,000,  Iowa. 

Dry  Goods  and  Groceries. 

(Sept.  i,  1892.) 

"Has  been  in  business  here  since  1879,  and  has  built  up 
quite  a  patronage.  Is  thirty-eight  years  old;  married. 

"  He  makes  the  following  statement:  '  Stock  in  store  $9,000; 
storebuilding  and  lot  $4,300 ;  book  accounts  outstanding 
$3,200;  homestead  $2,500.  Owe  for  stock  $2,800;  mortgage 
on  homestead  $1,800;  no  other  indebtedness.  Sales  from 
Jan.  i,  1892,  to  date,  about  $37,000.  Carry  $5,000  insurance 
on  stock.' 

44  It  is  learned  that  H.  has  been  mixing  in  politics  lately, 
and  is  often  absent  from  the  business  for  three  or  four  days 
at  a  time,  leaving  the  store  in  charge  of  employes.  He  is 
well  liked,  and  is  regarded  as  strictly  honest  and  upright  in 
all  his  dealings.  His  character  and  habits  are  good  and  he 
seems  to  be  quite  punctual  in  all  his  engagements." 

8  543.     Mercantile  Report  No.  7. 

The  Acme  Mercantile  Co.  Lumber  and  Mining  Region. 

(May  7,  1892.) 

"  Mr.  L.  A.  Kempis,  treasurer  and  manager,  says  the  company 
was  incorporated  January  last,  with  an  authorized  capital  of 
$10,000,  all  paid  in.  Represented  by  merchandise.  He  says 
the  business  per  month  would  aggregate  $18,000;  have$5,ooo 
insurance  on  stock,  and  succeeds  L.  A.  Kempis.  Expects  to 
carry  about  $20,000  stock  through  the  winter.  Confine  pur- 
chases to  about  five  large  houses.  Keeps  bank  account  with 


380  COMMERCIAL  CREDITS. 

First  National  Bank  of  M -  and  local  bank.     On  March 

9,  1892,  they  gave  a  statement  as  follows: 

"ASSETS. 

Cash  value  of  stock  in  store. $9,000 

Stock  in  transit 500 

Book  accounts — good 800 

Cash  on  hand  and  in  bank 600 

Real  estate _ _   2,000 

Total  assets _  1 2,900 

LIABILITIES. 

Merchandise,  open  account,  not  due __       500 


Surplus  in  business $ 1 2,400 

"  Kempis  says,  further,  that  he  considers  his  interests,  out- 
side of  the  company,  worth  $50,000  over  all  liabilities. 

"  The  company's  books  show  he  paid  out,  in  about  one 
month  in  March  and  April  $5,000  in  checks  on  two  banks, 
leaving  but  a  very  small  balance  at  present  time.  He  claims 
to  have  about  $10,000  now,  gives  liabilities  of  about  $2,000, 
and  says  outstandings  are  about  the  same.  Many  claims  have 
been  received  against  Kempis  individually,  and  some  are  in 
attorneys'  hands,  unpaid,  with  which  nothing  can  apparently 
be  done  but  to  await  his  pleasure,  and  it  is  said  that  when  he 
has  the  money  he  dislikes  to  pay  a  debt  with  it.  The  idea 
seems  to  be  entertained  that  the  fact  of  incorporation  was  for 
the  purpose  of  limiting  his  liabilities  and  to  block  the  collec- 
tion of  existing  debts." 

§  544.     Mercantile  Report  No.  8. 

Brown  &  Smith.  Iowa. 

Wholesale  Grocers. 

(Sept.  15.  1892.) 

"  This  firm  commenced  business  here  three  years  ago,  and 
is  composed  of  P.  L.  Brown  and  M.  W.  Smith.  The  former  is 
a  married  man,  about  thirty-five  years  of  age,  who,  we  believe, 
failed  once  some  time  ago,  but  is  spoken  of  in  favorable  terms, 


ANALYSIS  OF   MERCANTILE  REPORTS.  381 

Just  prior  to  entering  into  this  business,  was  engaged  in  ship- 
ping fruits  to  towns  in  this  region,  and  not  understood  to  have 
any  means  of  his  own.  His  partner,  Smith,  was  an  explorer, 
and  understood  to  have  a  few  thousand  dollars.  They  started 
out  with  a  stock  of  about  $3,000,  which  they  claimed  was  all 
paid  for.  They  have  been  doing  a  large  business  from  the 
start  and  making  some  money,  but  their  capital  is  rather  in- 
tadequate  for  the  trade  they  do,  although  there  is  no  com- 
plaint regarding  payments,  and  we  understand  they  confine 
the  bulk  of  their  purchases  to  one  house.  About  one  year 
ago  a  representative  of  a  house  called  on  them,  and  received 
the  following  statement  of  their  condition: 

"Stock,  $10,000;  outstandings,  $6,000;  cash  in  bank,  $200; 
liabilities,  about  $9,000;  on  open  accounts,  about  $500  past 
due,  but  not  pressing,  and  $1,500  due  the  bank.  Smith  had 
homestead  worth  about  $800.  Merchandise  sales  for  first  six 
months  of  the  year,  $27,000,  of  which  a  little  over  one-fourth 
was  cash. 

"This  statement  was  considered  a  candid  one,  but  showed 
that  they  credit  quite  freely  for  a  house  with  so  light  active 
capital ;  but  claimed  to  scrutinize  closely.  They  are  regarded  as 
strictly  honest,  and  we  understand  they  are  given  what  little 
bank  accommodations  they  need.  They  appear  to  have  credit 
for  the  demands  of  their  business,  but  it  is  probably  reason- 
able to  suppose  that  their  account  is  allowed  to  run  along. 
They  do  an  immense  business  for  their  capital,  which  would 
be,  nominally,  $4,000  or  $5,000,  but  thus  far  they  seem  to  be 
able  to  turn  themselves  without  any  apparent  inconvenience. 
Are  very  fair  business  men,  steady  and  attentive,  but  it  h; 
advisable  to  use  some  caution  in  handling  the  account,  as 
their  business  is  crowding  so  rapidly  that  they  are  apt  to 
overreach  themselves. 

"Supplemental  to  this  agency  report,  is  that  made  by  a 
traveling  agent :  '  Brown  is  a  good  salesman,  and  a  pusher. 
His  partner  is  a  nonentity,  except  as  to  capital  originally  fur- 


382  COMMERCIAL  CREDITS. 

nished.  Doing  too  much  credit  business  for  means,  however 
in  fair  credit,  and  seem  to  get  all  the  goods  needed.  Think 
them  honest  and  well  intentioned  toward  everybody.' " 

§  545.  Mercantile  Report  No.  9.  The  following  report 
was  obtained  by  a  Des  Moines  house  to  determine  credit  on 
mail  order  received  : 

John  Doe.  Town  of  3,000, 

Near  Omaha,  Nebraska. 
Retail  Grocer. 

"Commenced  this  business  five  years  ago;  firm  was  then 
Doe  &  Co.,  the  'Co.'  being  his  father-in-law,  a  well-to-do  far- 
mer, who  retired  two  years  ago  from  the  business.  Under 
Doe  &  Co.  the  firm  was  regarded  good,  and  enjoyed  a  first- 
class  credit,  although  the  habits  of  Doe  were  not  good,  and 
this,  it  is  presumed,  caused  the  father-in-law  to  drop  out. 
He  declines  to  give  a  statement.  His  stock  is  estimated  at 
from  $4,000  to  $5,000.  Does  a  large  credit  business  with  the 
farmers,  and  is  not  considered  a  sharp  collector.  No  estimate 
can  be  made  of  liabilities,  which  he  says  are  for  current  bills 
only.  Considered  responsible  for  a  moderate  amount.  Hear 
no  complaints." 


CHAPTER  VI. 

INVENTORY  VALUATIONS/ 


£546.     Self-deception. 

547.  Object  of  taking  an  inventory. 

548.  What  is  property  worth? 

549.  Old  stock,  "odds  and  ends." 
550      Invoicing      a       manufacturing 

plsjt. 


§551.     Accounts  and  bills  receivable 

1.  Those  found  uncollectible. 

2.  Those    against   estates    in 

the  hands  of  receivers,  etc. 

3.  Those  past  due  in  lawyer's 

hands,  for  collection. 
552.     Suspense  account. 


§  546.  Self-deception.  There  is  a  right  way  and  a  wrong 
way  to  do  almost  everything,  and  there  are  safe  and  unsafe 
methods  of  doing  business.  We  call  attention  to  the  meth- 
ods employed  by  merchants  in  taking  an  inventory.  There  is 
little  difference  in  opinion  as  to  the  method  to  pursue  in  this 
matter,  but  the  difference  in  practice  is  very  great.  Strange 
as  it  may  seem  that  people  should  willfully  deceive  themselves, 
it  is  nevertheless  a  fact  that  self-deception  is  of  every-day 
occurrence  among  business  men.  It  seems  that  there  is  a 
weakness  in  our  nature  that  makes  us  try  to  appear  for  more 
than  we  are,  and  especially  so  in  a  financial  sense.  But  we 
not  only  deceive  others  but  we  deceive  ourselves.  We  are 
not  satisfied  to  gauge  our  effects  by  a  cash  valuation. 
Even  when  we  know  what  this  would  be  we  still  hope  to  real- 
ize more,  and  so  place  on  them  a  fictitious  value. 

$  547.  Object  of  Taking  an  Inventory.  What  is  an  inven- 
tory taken  for?  First,  to  enable  the  proprietor  to  ascertain 
his  true  present  worth.  This  is  an  important  bit  of  informa- 

aMost  of  the  ideas  in  this  chapter  are  from  "Whom  to  Trust,"  by  P.  R. 
Earling. 


3$4  COMMERCIAL  CREDITS. 

tion,  for  it  is  necessary  for  him  to  know  his  condition  that  he 
may  conduct  his  future  affairs  intelligently  and  with  greater 
safety.  Second,  to  enable  him  to  determine  whether  his 
business  is  prosperous  or  otherwise.  This  is  of  great  import- 
ance to  the  successful  business  man.  To  continue  a  business 
that  is  unprofitable  is  the  mark  of  a  bankrupt.  A  knowledge 
of  such  facts  will  determine  us  to  retire  from  the  business  or 
devise  some  means  of  remedying  the  defect. 

§  548.  What  is  Property  Worth?  In  a  strict  sense  prop- 
erty is  worth  what  we  can  realize  from  it  in  money  whenever 
it  is  desired  to  convert  it.  This  may  mean  a  '  forced  sale' 
valuation,  but  that  is  not  demanded,  by  even  the  strictest  rules 
of  business  practice.  What  can  be  realized  from  .property  in 
the  ordinary  course  of  trade,  or  what  it  can  be  duplicated  for, 
iurnishes  a  fair  and  safe  basis  for  an  estimate  of  its  worth. 
A  stock  is  worth  what  it  would  cost  to  replace.  It  may  be 
worth  more  or  less  a  month  hence,  but  all  subsequent  varia- 
tions in  value  enter  into  the  following  year's  profit  or  loss 
account,  or  inventory. 

The  plan  followed  by  conservative  houses  is  to  appraise 
their  stock,  personal  and  other  property,  at  the  lowest  cash 
market  value.  Some  are  still  more  conservative,  and  give 
goods  credit  for  cost  only  when  that  is  below  the  market,  and 
at  market  value  only  when  that  is  below  cost.  The  first  plan 
is  safe  but  the  second  is  safer,  and,  as  no  injury  is  done  to  the 
owners  or  any  one  else,  it  may  commend  itself  to  the  reader. 
The  aim  should  be  to  appraise  our  property  in  such  a  manner, 
that  if  we  should  subsequently  decide  to  retire  from  business, 
that  we  would  realize  the  full  limit  of  our  calculations.  How 
many  do  this  ? 

As  far  as  the  profit  or  loss  is  concerned  it  makes  no  differ- 
erence  what  method  is  used  in  appraising  inventory,  so  long 
as  one  method  is  adhered  to  from  year  to  year. 

$  549.  Old  Stock,  "Odds  and  Ends."  Where  the  greatest 
mistake  is  made,  however,  and  where  the  greatest  self-decep- 


INVENTORY  VALUATIONS  385 

tion  is  practiced,  is  on  old  stock,  goods  out  of  date,  broken  as- 
sortments, and  "odds  and  ends"  generally,  so  that  unless  great 
care  is  exercised,  a  large  quantity  of  these  will  be  on  hand  year 
after  year.  To  take  these  at  cost,  as  is  often  done,  is  unsafe 
and  unbusinesslike.  They  have  an  auction-house,  or  "job- 
lot"  value,  and  the  proper  thing  to  do  is  to  ascertain  that  be- 
fore each  inventory,  by  converting  into  cash  by  auction  or 
job-lot  sale.  It  often  occurs  that  old  and  reputable  houses, 
after  doing  business  for  a  life-time,  and  thinking  themselves 
well-off,  have  found  on  winding  up  that  they  were  compara- 
tively poor,  or  altogether  bankrupt,  for  no  other  cause  than 
giving  a  lot  of  old  rubbish  a  fictitious  value  which  a  money 
standard  will  not  warrant. 

$  550.  Invoicing  a  Manufacturing  Plant.  In  the  case  of 
a  manufacturing  plant  that  is  partly  composed  of  machinery, 
tools,  patterns,  fixtures,  etc.,  the  following  plan  is  largely 
adopted  in  regard  to  values:  all  the  machinery,  tools  and  fix- 
tures, etc.,  are  charged  to  machinery  account  at  cost.  Labor 
expended  in  putting  them  up,  fitting  and  repairing,  is  charged 
into  expense  account  directly.  At  the  end  of  each  year  the 
machinery  account  is  credited  with  a  percentage — say  ten  per 
cent. — for  wear  and  tear  and  depreciation.  If  the  business 
was  closed  out  the  first  year  or  so,  this  method  would  not 
cover  the  depreciation,  but  in  carrying  it  on  permanently,  we 
can  see  that  in  ten  years  the  first  year's  investment  would 
stand  cancelled  on  the  books. 

Of  course  even  second-hand  machinery  has  some  value  and 
when  this  is  reached  the  discounting  process  is  stopped.  It  is 
simply  intended  to  arrive  at  a  fair  valuation,  and  at  which  the 
property  would  be  convertible. 

$551.  Accounts  and  Bills  Receivable.  But  the  most  dif- 
ficulty is  experienced  in  appraising,  at  its  actual  value,  prop- 
erty in  the  shape  of  Accounts  and  Bills  Receivable.  There 
are  few  accounts  that  we  can  be  absolutely  sure  of.  Those 
which  we  look  upon  as  the  best,  sometimes  turn  out  a  loss, 
and  the  more  doubtful  ones  come  in  all  right. 


2V"1  COMMERCIAL  CREDITS. 

In  order  not  to  be  misled  in  our  calculations  of  what  is  due 
us,  and  what  will  be  paid,  we  may  classify  our  accounts  and 
bills  receivable,  and  treat  each  class  separately,  by  a  general 
average,  such  as  our  past  experience  indicates.  We  divide 
them  into  three  classes,  viz: 

1.  Accounts  and  notes  which  have  been  found  uncollectible 
after   exhausting  all  the   means    at   our    command.      These 
should  be  charged  up  to  loss  and  gain  account  and  expunged 
from  the  ledger. 

2.  Accounts  against  estates  in  the  hands  of  assignees  an,d 
receivers.      These   should  be  charged,   in  part,  to    loss  and 
gain  account.     We  may,  with  safety,  depend  on  realizing  one- 
third  of  these;  the  other  two-thirds  should  be  charged  up  to 
loss  and  gain.     This  is  by  no  means  an  under-valuation. 

3.  Accounts  past  due,  in  the  hands  of  attorneys  for  collection. 
This  refers  to  those  wherein  the  responsibility  of  the  debtors 
has  not   yet  been  ascertained.     They  are   past  due,  and   the 
ordinary  methods  of  securing  payment  have  failed.      They  may 
or  may  not  be  convertible  by  law.     Some  of  these  can  be  col- 
lected in  full,  others  in  part,  and  others  not   at  all,   and  it    is 
impossible  to  tell  which  is  which.     Charge  one-half  of   these 
to  loss  and  gain  and  you  will  not  be  far  out  of  the  way.     It  is 
assumed  here  that  all  accounts  are  placed  promptly  in  the 
lawyer's   hands  when    not  settled  within   a  reasonable  time 
after  due. 

In  class  three  only  "live"  accounts  are  contemplated. 

§  552.  Suspense  Account.  For  convenience  accounts  un- 
der class  three  may  be  closed  into  ''Doubtful"  or  "Suspense" 
account,  and  one-half  of  the  total  charged  to  loss  and  gain. 
This  leaves  one-half  of  their  face  value  to  inventory.  The 
same  may  be  done  with  class  two — then  charge  two-thirds  up 
to  loss  and  gain,  leaving  one-third  to  inventory  as  available 
assets. 

Because  accounts  are  charged  up  to  loss  and  gain,  or  to 
suspense  account,  and  balanced  on  our  ledger,  does  not  sig- 


INVKNTORY  V.U.I.-ATIONS.  387 

nify  that  we  are  to  lose  sight  of  them.  A  "Loss  and  Gain 
Ledger,"  independently  of  the  regular  books,  is  usually  kept, 
and  old  claims  are  thus  looked  after.  Some  of  these  are  res- 
urrected occasionally,  by  watching  them  and  keeping  track  of 
the  movements  of  our  defunct  debtors.  An  entry  once  in  a 
while  on  the  credit  side  of  loss  and  gain  does  not  mar  the 
appearance  of  that  account. 

The  bearing  this  chapter  has  on  credits  will  be  apparent 
when  we  consider  that  we  rely  almost  entirely  on  the  appli- 
cants for  credit,  themselves,  for  the  estimate  placed  on  their 
capital  and  resources.  Whether  the  estimates  are  made  on  a 
basis  of  actual  value,  or  whether  unsalable  goods  and  worth- 
less accounts,  make  up  the  sum  total,  largely  or  in  part,  is 
beyond  our  means  of  ascertaining.  But  appreciating  the  fact, 
that  over-estimates  are  the  rule,  and  ficticious  valuations  are 
frequent,  more  from  lack  of  good  business  methods  than  from 
bad  intentions,  perhaps,  the  necessity  becomes  manifest  for 
making  allowance  for  a  liberal,  average  shrinkage. 


CHAPTER  VII. 


THE  ART  AND  PRACTICE  OF  ADVERTISING. 


§553.  Advertising. 

554.  Lying  in  advertisements. 

555.  Unprofitable  advertising. 

1 .  Upside  down. 

2.  "Don't  read  the  other  side." 

3.  "Look    in    this    space    next 

week." 

4.  "This  space  reserved." 

5.  Preliminary    initial     adver- 

tisements. 

6.  Same. 

7.  Same. 

8.  Puzzles. 

556.  Why   some    advertisements   are 

never  heard  from. 

557.  Mistakes  of  small  advertisers. 

558.  Opinions  regarding  advertising. 

i.. Definition  of  advertisement. 

2.  Marshall   Field  &    Co.,  dry 

goods. 

3.  Fisk,     Joseph     &     Co.,    dry 

goods. 

4.  Chas.    Gossage    &   Co.,    dry 

goods. 

5.  Carson,    Pirie     &    Co.,    dry 

goods. 

6.  Dunlap   Smith   &  Co.,    real 

estate. 

7.  Snow  &  Dickinson, real  estate. 


§558.  Opinions  regarding  advertising. 

8.  S.  E.  Gross,  real  estate. 

9.  W.  A.  Merigold,  real  estate. 

10.  E.  A.  Cummings  &  Co.,  real 

estate. 

11.  Putnam  Clothing  House. 

12.  Browning,  King  &  Co.,  clo- 

thiers. 

13.  J.  W.  Tuttle,  clothier. 
14    F.  M.  Atwood,  clothier. 

15.  A.   H.    Revel!  &  Co.,  furni- 

ture. 

16.  Tobey  Furniture  Co. 

17.  N.  K.  Fairbank  &  Co.,  soap^ 

18.  Jas.  S.  Kirk  &  Co.,  soap. 

19.  C.  H    Slack,  grocer. 

20.  Lyon  &  Potter,  music, 

559.  The  satirical  in  advertising. 

560.  Show  window  advertising. 

561.  Advertising     agencies  —  placing 

advertisements, 
i    Selecting  the  method. 

2.  Pro  and  con  of  agencies. 

3.  Method  and  practice. 

562.  Methods  of  advertising. 

563.  About  writing  and  displaying  ad- 

vertisements. 

564.  Measuring  advertisements. 

565.  Suggestions  for  advertisers. 


§  553.  Advertising.  To  succeed,  a  business  man  must 
have  more  than  capital,  economy  and  honesty,  and  more  than 
goods  to  sell.  He  must  have  patronage,  and  it  will  usually 


TlIE    AiCT    ANH    Pi:  \  . \nVKRTISING. 

not  come  of  itself — he  must  ask  for  it.  Advertising  is  the 
lubricating  oil  of  business.  It  is  what  brings  trade,  without 
which  there  can  be  no  success.  The  people  must  know  where 
you  are  and  what  you  are  doing — they  will  not  hunt  you  up 
to  find  out.  You  must  tell  them  and  convince  them  that  what 
you  have  will  satisfy  their  wants.  This  can  only  be  done  by 
well  timed,  judicious  and  constant  advertising. 

But  to  make  advertising  pay  it  must  be  done  well.  Bar- 
rels of  money  are  wasted  every  year  by  injudicious  advertis- 
ing. Men  advertise  at  random,  and  then  wonder  why  they 
do  not  get  good  returns. 

Have  something  to  say,  say  it,  and  then  stop,  as  Franklin 
says,  and  in  regard  to  advertising  this  means  to  have  good 
goods,  at  reasonable  prices,  and  then  to  tell  it  right  to  the 
point,  properly  displayed,  and  without  lying  about  it. 

$  554.  Lying  in  Advertisements.  And  on  this  point  of 
lying,  Major  Richards  says  :  "  If  he  is  not  honest  who  yields 
to  the  temptation  to  lie,  he  is  not  wise  who  does  not  know 
that  lying  in  this  age  will  not  deceive;  that  the  most  ingenious 
and  persistent  lying  will  not  only  fail  to  establish  belief  in  circu- 
lation which  you  do  not  possess,  but  will  inevitably  cloud  even 
that  which  you  do  possess." 

Advertisers  often  claim  too  much.  To  claim  that  the  article 
which  you  are  selling  is  far  superior  to  all  its  competitors— 
"the  best  in  the  world" — is  to  arouse  a  spirit  of  denial.  The 
advertiser  who  simply  shows  up  the  merits  of  his  own  goods 
and  lets  his  competitors  take  care  of  themselves,  is  the  one 
who  convinces  the  prospective  buyer.  The  customer  is  not 
interested  in  your  strife  with  your  competitor.  He  wants  to 
know  the  good  qualities  of  your  goods — not  the  bad  qualities 
of  others' — and  he  may  then  use  his  own  judgment  as  to  which 
he  wants. 

$  555.  Unprofitable  Advertising.  First.  There  is  a  class 
of  advertisers  who  seem  to  be  imbued  with  the  idea  that  the 
more  difficulty  is  placed  in  the  way  of  reading  their  adver- 


-go  COMMERCIAL  CREDITS. 

tisements,  the  more  they  will  be  read.  This  fallacy  takes 
various  forms,  most  of  which  are  more  or  less  familiar,  and 
all  of  which  are  decidedly  objectionable. 

The  most  common  of  these  is  to  order  one's  advertisement 
printed  upside  down  in  the  papers.  This  is  an  old  dodge  and 
is,  fortunately,  nearly  obsolete  in  the  city  press.  It  still 
holds  in  the  country  journals,  however. 

Now,  it  is  hard  enough  to  get  people  to  read  advertise- 
ments at  all,  without  putting  extra  obstacles  in  their  way, 
and  while  it  may  not  be  necessary  to  stand  on  one's  head  to 
read  such  an  advertisement,  it  certainly  puts  the  reader  to  the 
trouble  (slight  though  it  may  be)  of  turning  the  paper  over 
in  order  to  peruse  it,  a  trouble  which  in  these  days  of  business 
will  not  be  taken  by  one  out  of  five. 

Second.  Of  the  same  order  are  the  signs  one  occasionally 
sees  strung  across  the  sidewalk,  marked  "DON'T  READ  THE 
OTHER  SIDE, "a  mandate  which  is  usually  obeyed  to  the  letter. 
There  is  a  wagon  in  Boston  on  which  the  owner's  name  and 
business  are  lettered  upside  down.  It  may  attract  attention, 
but  it  is  safe  to  say  that  not  one  in  ten  of  those  who  see  it 
can  read  it. 

This  being  the  case,  what  can  be  more  foolish  than  the  ad- 
vertisement which  appeared  not  long  ago  in  a  trade  journal, 
the  reading  matter  of  which  was  set  in  a  spiral  line,  beginning 
at  the  center  and  gradually  working  outward.  To  read  this 
card  would  require  six  complete  revolutions  of  the  book,  a 
bulky  one,  a  task  which  not  one  man  in  five  hundred  would 
undertake  in  order  to  read  an  advertisement,  however  much 
he  might  be  interested  in  its  contents. 

Third.  In  the  same  line  are  the  announcements  "LOOK  IN 
THIS  PLACE  NEXT  WEEK"  and  the  like,  printed  in  the  center 
of  a  large  space.  Who  do  you  suppose  remembers  to  follow 
your  advice  ?  Nobody.  People  don't  buy  papers  to  be 
regaled  by  promises  of  what  next  week  will  have  for  them. 

Fourth.      Neither  are  their  curiosity  and  admiration  stimu- 


Tin:  AKT  AND   PRACTICE  OF  AIJYEKTISIM,.  591 

Jated  by  such  trashy  announcements  as  "JOHN  BROWN  OWNS 
THIS  COLUMN."  What  does  the  reader  care  for  John  Brown? 
Two  to  one,  if  the  matter  is  given  any  thought  at  all,  it  is 
that  John  is  wasting  his  money  and  making  a  fool  of  himself. 

Fifth.  There  are  ways  of  piquing  the  curiosity  of  the 
public  in  such  a  manner  as  to  be  profitable.  Who  will  deny 
that  the  man  who  advertised 

S.-T.-i86o-X. 

made  a  ten-stroke  ?  He  spent  a  big  pile  of  money,  for  those 
days,  in  advertising  this  one  line.  Nobody  knew  what  it 
meant.  But  after  he  had  made  the  phrase  a  by-word  in 
everybody's  mouth  he  pushed  the  advantage  gained  for  all  it 
was  worth,  and  the  bitters  which  bore  this  trade-mark  found 
their  way  also  into  the  mouths  of  a  large  proportion  of  the 
populace.  This  advertising  made  Plantation  Bitters  the  best 
selling  nostrum  of  its  kind  for  many  years,  and  the  originator 
of  the  scheme  a  rich  man. 

Sixtli.  A  dozen  or  more  years  ago  a  soap  manufacturer 
advertised  the  single  word 

GOLD 

in  a  similar  style.  Not  content  with  taking  a  good  deal  of 
space  in  the  daily  papers,  and  covering  the  dead  walls,  curb- 
stones and  bill-boards  with  his  advertisement,  he  had  thou- 
sands of  cheap  flags  made  with  this  one  word  on  them  and 
distributed  them  to  school  children.  And  he  paid  agents  to 
go  around  and  place  these  flags  on  the  head  of  every  horse 
whose  driver  would  permit  such  decoration.  His  advertising 
was  the  talk  of  the  community. 

But  there  is  always  a  special  danger  in  this  style  of  adver- 
tising. Whenever  there  is  a  way  open  to  profit  at  another's 
expense,  some  one  is  always  to  be  found  to  take  advantage  of 
it.  There  are  always  to  be  found  concerns  who  are  willing 
to  reap  the  harvest  they  have  not  sowed,  and  who  will  steal 
another  man's  thunder  without  any  phenomenally  exhaustive 
drain  upon  their  consciences. 


392  COMMERCIAL  CREDITS. 

It  was  so  with  Gold  Soap  advertising.  I  have  recalled 
this  incident  to  show  that  nothing  but  a  large  extra  expendi- 
ture of  money  saved  this  scheme  from  becoming  not  only 
absolutely  valueless  to  its  originator,  but  of  direct  benefit  to 
some  other  entirely  distinct  concern.  After  the  "gold"  excite- 
ment had  been  thoroughly  worked  up,  an  advertisement 
appeared  in  all  the  papers  which  had  originally  contained  the 
enigmatic  word.  It  was  headed  "Gold,"  giving  the  readers 
the  impression  that  the  preliminary  advertisements  were  for 
the  purpose  of  booming  a  land  company,  which  offered  real 
estate  at  such  prices  that  gold  dollars  at  fifty  cents  would  be 
a  poor  investment.  It  was  only  by  a  largely  increased  outlay 
that  the  Gold  Soap  men  reaped  any  advantage  by  their  pre- 
liminary announcements. 

Seventh.  A  similar  experience  befell  another  soap  manu- 
facturer only  about  two  years  ago.  For  several  weeks  the 
cabalistic  letters  "S.  A.  S."  appeared  in  every  form  of  adver- 
tisement, dodgers,  posters,  street-car  placards  and  newspa- 
pers. There  is  no  doubt  that  a  good  deal  of  money  was  spent 
in  popularizing  these  three  letters.  And  with  what  result  ? 
Some  one  in  Connecticut  saw  a  chance  to  realize  a  large 
amount  of  advertising  by  stealing  a  march,  so  he  began  ad- 
vertising "Self  Adjusting  Stays,"  surrounded  by  lines  of 
"S.  A.  S,"  A  shoe  dealer  in  Boston  advertised  "Stiff  Ankle 
Supporters"  and  "  Self  Acting  Sandals,"  and  these  piratical 
individuals  knocked  the  wind  out  of  the  soap  man's  sails,  for 
a  time  at  least. 

The  man  who  tries  the  initial  dodge  today  must  needs  have 
a  sharp  eye,  a  good  amount  of  nerve  and  a  bigger  amount  of 
money.  Some  peculiar  name  or  design  which  can  be  pro- 
tected as  a  trade-mark  would  be  much  better,  as  this  can  be 
registered  and  its  use  by  other  parties  prevented. 

Eighth.  A  similar  method  of  attracting  attention  is  by 
the  puzzle  or  rebus.  It  is  said  that  children  who  cultivate  a 
taste  for  the  puzzle  departments  of  juvenile  periodicals  never 


THE  ART  AND  PRACTICE  OF  ADVERTISING.  393 

lose  a  desire  to  decipher  such  things  wherever  they  find 
them,  and  this  desire  does  not  diminish  as  they  grow  to  man- 
hood. Perhaps  not.  I  won't  say  this  is  not  true,  but  does 
any  sane  man  believe  that  it  is  good  advertising  to  waste 
space  which  costs  so  much  a  line,  by  publishing  poorly  drawn 
cuts  of  a  tea  chest  and  a  back-number  hat  to  represent  "  that," 
and  such  like  trash  ?  Does  the  man  live  who  thinks  anything 
published  in  such  hieroglyphics  will  make  any  impression  on 
the  public  ? 

If  he  does — well,  if  he  does,  let  him  spend  his  money  that 
way.  He  will  learn  better  by  experience.  I  say  that  if  he 
spent  the  money  it  costs  to  engrave  these  childish  puzzles  in 
getting  good  cuts  or  expert  advice,  he  would  be  better  satisfied 
with  his  advertisement,  both  in  attractiveness  and  effective- 
ness.1 

>>  556.  Why  some  Advertisements  are  never  Heard  from. 
Sometimes  important  information  is  left  out  of  an  advertise- 
ment. I  notice  now  an  illustrated  advertisement  showing  a 
self-satisfied  Knickerbocker  gentleman  of  the  old  school 
enjoying  his  pipe,  and  the  advertiser  praises  the  value  of 
"  Golden  Sceptre,"  and  urges  all  to  try  it.  Now  what  Golden 
Sceptre  is  we  don't  know.  It  may  be  tobacco;  perhaps  it  is 
sweet  fern  leaves,  or  almost  anything  else.  A  doubt  left  in 
the  mind  of  the  reader  mars  an  otherwise  good  advertisement. 

All  advertising  prompts  inquiry,  primarily  that  is  what  it 
is  for. 

First.  Impress  the  reader;  catch  his  attention  so  he  will 
read  it,  otherwise  it  is  a  dead  loss. 

Second.  Tell  the  story  briefly,  but  with  interest,  so  as  to 
hold  the  attention. 

Tliird.  Anticipate  the  first  natural  curiosity  of  the  reader, 
and  leave  details.  But  to  get  an  answer  to  the  first  natural 
or  incidental  inquiry,  if  the  reader  is  put  to  the  trouble  of  sit- 
ting down  and  writing  a  letter,  ordinarily  you  won't  get  him. 

a  George  E.  B.  Putnam,  in  Business,  Nov.,  1892. 


394  COMMERCIAL  CREDITS. 

For  instance  :  if  it  is  not  a  staple  article  found  in  general 
stores,  the  first  natural  inquiry  in  the  mind  of  the  reader  is, 
"Where  can  I  get  this,  and  what  will  it  cost  ?"  Not  to  leave 
this  question  unanswered,  but  to  work  it  into  the  story  with 
interest,  at  the  right  point,  is  an  art. 

I  find  a  good  illustration  of  the  first  and  second  injunction 
very  cleverly  carried  out  in  an  eight-page  advertisement  of 
the  Century  Dictionary  in  the  January  Century,  but  the  third 
precept  has  been  entirely  overlooked.  The  beginning  of  the 
advertisement  with  the  statement  that  English  is  becoming  the 
world's  language,  and  the  statistics  following  to  prove  it,  im- 
press the  reader.  The  details  and  illustrations  which  follow 
will,  if  he  is  interested,  hold  his  attention,  although  it  is  rather 
long.  But  after  reading,  the  reader  naturally  says  to  himself, 
44 1  would  like  to  have  one  of  those  dictionaries;  I  wonder 
what  they  cost?"  This  natural  inquiry  is  not  anticipated. 
One  single  line  more  would  have  done  the  business,  but  it 
is  not  there.  Naturally,  the  magnitude  of  the  work  has  been 
so  elaborately  described,  I  feel  it  is  too  expensive  ;  7,000 
pages,  24  volumes,  and  ten  years  of  labor,  I  "guess"  it  must 
be  $240  or  more,  and  I  conclude  I  cannot  afford  it. 

The  advertisement  is  cleverly  written,  and  may  have  done 
its  work;  but  that  was  six  months  ago,  and  all  that  I  now 
remember  is,  that  everybody  is  going  to  speak  English,  and 
that  the  Century  Dictionary  must  be  a  very  costly  work.  If 
this  is  the  impression  intended  by  the  advertiser,  the  adver- 
tisement is  a  success.1' 

$  557.  Mistakes  of  Small  Advertisers.  This  is  an  age  of 
advertising,  and  the  idea  has  been  pretty  thoroughly  accepted 
that  to  be  successful  a  man  must  advertise.  Many  men  be- 
lieve this  who  have  a  very  indefinite  idea  of  how  it  should  be 
done. 

It  is  on  account  of  this  that  many,  I  might  say  nearly  all, 
local  papers  (I  do  not  include  metropolitan  dailies  in  the  cate- 

11  I.  F.  Place,  in  Printer's  Ink,  Sept.  7,  1892. 


THE  ART  AND  PRACTICE  OF  ADVERTISING. 


395 


gory  of  "local  papers")  have  from  one  to  three  columns  of 
business  or  professional  cards,  which  look  much  the  same  as 
the  left-hand  column  on  page  396. 

These  advertisements  remain,  from  one  year's  end  to  the 
next,  in  the  same  place  and  the  same  type.  The  casual  reader 
may  glance  at  them;  the  regular  reader  never.  Yet  nearly 
all  the  readers  of  local  papers  are  regular  readers.  Very  few 
of  the  casual  readers  are  purchasers  in  the  local  stores.  Un- 
der these  circumstances  do  you  wonder  that  these  tradesmen 
and  mechanics  conclude  that  "all  this  talk  about  advertising 
is  bosh"  ? 

It  would  be  unjust  to  say  that  such  advertising  is  valueless. 
It  is  worth  something,  but  not  much.  I  believe  that  all  ad- 
vertising of  local  business  in  local  papers  pays — that  it  has 
some  value.  But  such  stereotyped  advertisements,  year  in, 
year  out,  are  about  as  near  valueless  as  any  can  be  in  a  live 
paper. 

Such  advertisements  make  dull  reading.  They  say  nothing 
which  interests.  They  do  not  suggest  any  want  in  the  read- 
ers' minds  which  the  advertiser  can  supply.  To  say  that 
Richards  is  an  apothecary  is  not  half  as  effective  advertising 
in  bringing  business  as  it  would  be  to  say  that  Richards  can 
cure  a  cough  or  a  corn  for  a  quarter.  Lots  of  people  have 
coughs  or  corns,  yet  these  same  people  walk  by  a  dozen  drug 
stores  every  day  and  never  think  of  entering  one  to  buy  a 
remedy. 

A  dull  statement  of  fact  may  impart  information,  but  if  it 
does  not  arouse  any  interest  it  fails  in  its  mission. 

Plain,  uniform  type  and  a  certain  requirement  that  all  ad- 
vertisements must  be  each  just  like  its  neighbor  may  make  a 
paper  look  well,  but  it  destroys  individuality.  Individuality 
is  what  makes  advertising  attractive,  makes  advertising  read- 
able, makes  advertising  pay — individuality  in  ideas,  in  word- 
ing, in  arrangement,  in  typography. 

Get  out  of  the  rut. 


AS  THEY  AT{E 


AS  THEY  MIGHT  BE. 


BUSINESS  CARDS. 


BUSINESS  CARDS. 


TARIEH  H.  RICHARDS. 

DRUGGIST  AND  APOTHECARY, 

24  South  Main  St. 

Patent  and  Proprietary  Medicines  always 
on  band.  Physicians*  Prescriptions  carefully 
prepared. 


Richards,  The  Druggist, 

Will  Cure 

II  111  UUl  U 


sfh 

A  Sprain 


OTHER  ACHES  IN  PROPORTION. 

24  South  Main  St. 


/CHARLES   B.   McKENZIE, 

Dealer  in 

BOOTS  AND  SHOES. 

A.IBO  repairing  done  at  short  notice. 

4  Main  Street,  next  the  P.  O. 


LOOK  at  your  SHOES. 

DON'T  YOU  WANT  A  NEW   PAIR  ? 

Look  at  My  $3.00  Shoes. 

~  You'll  want  'em.  You'll  buy  'em. 
McKENZIE,  next  door  to  the  Post-Office. 


QEORGE  L.  COOKE,  D.  D.  S., 

(Formerly  A.  A.  &  G.  L.  Cooke.) 
Rooms  over  First  National  Bank,  Main  Street. 


I  MAKE  TEETK. 
I  FILL  TEETH. 
I  PULL.  TEETH; 

FULL   SETS    FROM    *1O    UPWARD. 

Fresh  gas  made  daily.  Partial  sets,  bridge 
work  and  all  modern  improved  methods 
of  dentistry -practised. 

6£«:  L,C«»RE.  «.«. «... 


First  Nat'l 


Bld'gr,  Main  St. 


A     H.  KENT'S 

TROY  LAUNDRY. 

All  kinds  o)  family  laundry  done  with  neat- 
ness and  dispatch.  Special  attention  paid  to 
fine  \vork.  Ruffling  and  fancy  ironing  done 
to  order.  Lace  curtains  made  to  look  like 
new.  Collars  and  cuffs  2  cents  each. 
129  Centre  Street. 


linen  will  wear  twice 

as  long  if  you  send  it  to  Kent's 
Hand  Laundry.  No  machinery,  no 
acids,  no  'chemicals  used.  Telephone 
or  send  postal  and  we' II  call. 

I2Q  Central  St. 


A. 


PHILLIP1N1, 


ROOT 


FRUIT  DEALER, 


23  Main  St. 

Oranges,  Lemons,  Bananas,  Nuts,  Raisins, 
Dates,  Prunes.  Apples,  Pears  and  Peaches  in 
their  season.  Soda  Water  and  Root  Beer, 
Peanuts  fresh  roasted  :  also  Chestnuts. 


BERRIES  ARE   RIPE 

I  HAVE 

Blackberries,  Blueberries,  :RCCp 
Gooseberries. 

Drink  Lemonade  this  hot  weather. 
Lemons  25  cents  a  dozen. 


PHILLIPINI 


SOLD 
HERE 


JDICHARDSON  &  SON, 

DRY  GOODS. 

Silks.  Cotton  and  Woolen  Fabrics,  Ribbons, 

Laces.  Fancy  Goods,  Notions  and  Sundries. 

76  Main  Street,  corner  of  Elm  St. 


JERUSALEM 

is  a  good  ways  off.  Our  prices  are  way  off. 
Can't  name  bargains  here.  Space  too  small. 
Look  in  our  window,  corner  of  Elm  and  Main 
Sts.  Just  for  a  sample  bargain,  a  Pure  Sillc 
Umbrella,  $2.25.  Lots  of  similar  bargains. 
RICHARDSON  &  SON. 


gTEVENS  dc  COMPANY, 

Dealers  In 

MEN'S,  BOYS' AND  YOUTHS'  CLOTHING 
AND  GENTS'  FURNISHING  GOODS, 
6  Mala  Street,  near  the  Post  Office, 


SLIGHTLY 
OILED 


C 

OQUMMER 
OCUITS 


6 

MAIN 

A!  J 
STREET. 


AT 

CTEVENS' 
OQTORE  AT 
OURPRISINO 


THE  ART  AND  PRACTICE  OF  AI>YI:KTIMN<,.  397 

Let  people  see  that  you  are  advertising  to  get  their  trade, 
not  simply  to  follow  the  procession.  These  advertisements 
in  the  left-hand  column  are  real  ones,  cut  from  a  prosperous 
paper.  I  have  omitted  or  changed  the  name  of  the  town,  but 
all  else  stands  as  published  this  week,  next  week,  next  year, 
if  the  contracts  are  renewed. 

Over  against  these,  in  the  right-hand  column  and  parallel 
'thereto,  I  have  endeavored  to  give  an  idea  of  how,  without 
increasing  the  space  occupied,  these  tradesmen  could  make 
people  read  their  announcements,  and,  by  reading,  acquire 
some  desires  which  will  bring  them  to  the  stores  and  force 
them  to  spend  money. 

I  think  that  every  reader  will  acknowledge  that  the 
breeziness  of  the  boot  and  shoe  advertisement  will  make 
people  read  it,  after  the  border  has  attracted  their  eye. 

George  L.  Cook  may  be  a  D.  D.  S.,  and  he  may  formerly 
have  been  A.  A.  &  G.  L.  Cook,  though  I  can't  really  imagine 
how.  It  is,  of  course,  interesting  to  know  this,  and  that  he 
rooms  over  the  first  National  Bank,  but  who  with  an  aching 
tooth  or  a  desire  for  a  set  of  store  teeth  can  gain  any  information 
from  such  a  card?  I  don't  believe  one  man  in  a  hundred,  or 
one  woman  in  a  thousand,  would  know  who  or  what  Geo.  L. 
Cook  was.  It  goes  without  saying  that  for  business  the  op- 
posite card  is  away  ahead. 

The  laundryman  tries  to  crowd  too  much  in  little  space. 
The  only  real  valuable  point  in  his  advertisement  is  his  price 
for  laundering  collars  and  cuffs.  Over  against  this  may  be 
placed  the  neat,  straightforward  statement  in  the  right-hand 
column.  The  plain  type  gives  it  an  individuality  which  insures 
reading. 

Fruit  dealers  do  not  advertise  much,  but  I  think  more  busi- 
ness would  come  from  mine  than  from  Antonio  Phillipini's 
advertisement. 

Richardson  &  Son  are  fogies,  old  and  young,  or  perhaps  the 
son  cannot  bring  the  father  around  to  modern  ideas.  A  one- 


398  COMMERCIAL  CREDITS. 

inch  space  for  a  dry  goods  store  is  generally  useless.  How- 
ever, to  be  seen  one  must  use  startling  methods,  if  no  larger 
space  is  taken.  I  approve  of  taking  more,  but  if  only  the 
inch  space  is  used,  drop  dignity  and  resort  to  impudence  to 
draw  the  reader's  attention.  The  same  may  be  said  of  a 
clothier.  An  inch  space  is  too  small.  No  one  is  likely  to 
take  any  notice  of  Stevens  &  Co.'s  card  in  the  left-hand  col- 
umn. How  many  would  fail  to  read  the  right-hand  one? 

Such  cards  should  be  changed  often.  Better  change  every 
week.  The  publishers  may  complain,  may  possibly  demur  at 
the  expense.  Pay  them  the  extra  cost,  but  change  it. 
Strive  to  make  your  card  different  from  your  neighbors'  in  the 
column.  Then  you  will  find  that  people  read  your  advertise- 
ment— and  reading  leads  to  business.1* 

$  558.  Opinions  regarding  the  Value  of  Advertising,  from 
the  Merchants  of  a  Great  City.  First.  A  short  time  ago 
the  Chicago  Tribune  sent  out  a  reporter  to  inquire  among  the 
prominent  advertisers  in  that  city  concerning  their  methods 
and  the  ideas  underlying  their  enterprise.  Several  columns 
of  interviews  were  printed  as  a  direct  result.  We  have  room 
for  only  a  brief  summary,  with  extracts  of  a  sentence  or  two 
from  each  of  several  of  the  more  important  interviews.  At 
the  outset  the  article  referred  to  the  present  as  being  an  ad- 
vertising age.  Everybody,  except  those  who  are  employed  by 
some  one  else,  advertises.  An  advertisement,  then,  is  the 
public  announcement  of  a  fact.  This  is  the  generally  accepted 
meaning  of  the  term.  More  specifically,  it  was  pointed  out, 
it  means  something  which  is  accepted  as  true,  and  published 
for  the  benefit  of  the  person  who  pays  for  the  advertisement. 

Second.  Speaking  of  the  characteristics  of  the  work  of  dif- 
ferent advertisers,  the  article  continued:  Marshall  Field  &  Co., 
the  leading  dry  goods  house  in  Chicago,  as  a  rule,  make  simple 
announcements  of  a  special  sale,  bargain  or  display.  The 
result,  they  declare,  is  invariably  noticeable  in  the  increased 

''  G.  E.  B.  Putnam,  in  Printer's  Ink,  Aug.  31,  1892. 


TH;:     \  '  •  AI>VKRTISING. 

business  of  the  department.  Before  sending  out  these  an- 
nouncements the  heads  of  the  departments  are  consulted  with 
reference  to  what  should  be  advertised.  Careful  attention  is 
given  to  the  typographical  display  upon  the  part  of  Mr.  Stone, 
the  gentleman  who  has  charge  of  the  advertising.  Of  this  he 
has  made  a  very  careful  and  original  study,  and  his  daily  pre- 
paration of  copy  is  assisted  by  a  book  in  which  are  specimen 
lines  of  different  fonts  of  type.  By  knowing  what  the  differ- 
ent newspaper  offices  have,  and  by  using  their  designating 
numbers,  Mr.  Stone  is  able  to  give  the  foreman  and  printers 
his  directions  in  a  way  never  to  fail  of  being  understood. 

Third.  Mr.  Greenbaum,  of  Fish,  Joseph  &  Co.,  also  in  the 
dry  goods  line,  said:  "We  certainly  believe  in  advertising, 
more  especially  in  telling  the  truth  when  we  advertise.  Peo- 
ple rely  on  truthful  accounts  and  on  finding  things  in  the 
store  just  as  represented." 

Fourth.  J.  H.  Wood,  of  Gossage's  dry  goods  house,  said: 
"  We  do  no  sensational  advertising  and  use  no  glaring  head 
lines.  All  we  aim  to  do  is  to  let  our  patrons  and  the  public 
know,  in  as  terse  a  way  as  possible,  of  any  special  sales  we 
have  going  on.  We  depend  altogether  on  the  values  we  give, 
and  we  strive  to  back  up  our  assertions  about  attractions  with 
the  goods  we  sell.  Merchants  who  misrepresent  their  goods 
in  advertisements  had  better  go  out  of  business.  Idle  talk  in 
advertising  is  expensive.  Tell  what  you  have  to  tell  in  as 
little  space  as  possible,  but  do  not  spoil  the  effect  by  making 
it  too  small." 

/•/////.  S.  S.  McLeish,  of  Carson,  Pirie  &  Co.,  said:  "Post- 
ers are  valuable,  but  display  advertisements  in  the  leading 
dailies  bring  us  customers.  Dodgers  do  some  good.  Signs 
do  not  attract  the  class  of  customers  we  desire.  A  firm  long 
established  finds  it  necessary  to  advertise  its  name.  A  new 
firm  must  make  a  display  of  its  trade-mark  until  the  public 
becomes  familiar  with  it,  as  well  also  as  the  character  of  the 
business  transacted.  We  prefer  a  large  advertisement  for  a 


400  COMMERCIAL  CREDITS. 

short  time  than  a  small  one  for  a  longer  period.  For  exam- 
ple, a  seven-inch  advertisement  inserted  once  will  attract  the 
attention  of  more  people  than  one  inch  inserted  seven  times." 

Sixth.  After  having  investigated  the  dry  goods  trade,  the 
reporter  turned  his  attention  to  real  estate.  Dunlap  Smith 
said;  "  Daily  newspapers  are  the  great  medium  for  real  estate 
dealers.  Next  in  value  we  find  cards  and  hangers  in  street, 
steam  and  railway  lines  leading  to  the  property." 

Seventh.  Snow  &  Dickinson  said:  "  The  real  estate  busi- 
ness, so  far  as  advertising  is  concerned,  differs  from  other 
pursuits.  To  have  a  general  advertisement  printed  does  not 
pay.  People  say,  'Here's  a  firm  that  advertises,  but  has 
nothing  to  offer.'  We  must  advertise  some  specialty;  then  it 
pays." 

Eighth.  O.  S.  Pratt,  advertising  agent  for  S.  E.  Gross,  said: 
"  We  rely  to  a  great  extent  on  bills  and  circulars.  Our  de- 
partment for  distributing  these  is  arranged  very  systematically 
and  the  clerks  in  it  are  busy  all  the  time.  If  an  advertise- 
ment is  to  be  worth  anything  it  must  be  made  attractive. 
Illustrations  please  the  eye,  while  reading  matter  entertains 
the  mind.  We  do  not  care  for  matter  that  others  use.  One 
of  the  secrets  of  successful  advertising  is  originality." 

NintJi.  \V.  A.  Merigold  said;  "  The  best  means  of  adver- 
tising depends  on  the  class  of  property  to  be  sold.  If  general 
business  and  residence  property  is  offered,  newspaper  adver- 
tising is  the  best  mode  of  disposition.  On  subdivision  we 
use  all  manner  of  circulars  and  printed  matter,  distributing  it 
in  the  territory  adjacent  to  the  property  to  be  sold.  We  give 
free  rides  to  the  property,  and  send  out  blotters,  calendars 
and  pocket  books  bearing  our  advertisement." 

Tenth.  R.  C.  Givens,  of  E.  A.  Cummings  &  Co.,  said: 
"  We  have  sold  thousands  of  lots  from  the  large  pictures 
which  we  display  in  front  of  our  office.  People  stop  and 
study  the  plot,  and  then  come  in  and  buy." 

Eleventh.     The  reporter  next  called  upon  the  clothing  mer- 


THE  ART  AND  PRACTICE  OK  ADVERTISING.  401 

chants.  The  manager  of  the  Putnam  Clothing  House  said: 
"The  only  thing  I  have  any  faith  in  is  newspaper  advertising, 
making  it  fresh  and  attractive  every  day, particularly  in  papers 
that  have  a  known  circulation.  The  best  advertisement  you 
can  have,  however,  is  a  good  day's  sale.  It  is  sure  to  be  fol- 
lowed by  another,  because  those  who  buy  go  home  and  talk 
about  their  purchase,  and  the  next  day  their  friends  come 
and  buy.  I  do  not  believe  in  standing  advertisements  at  all. 
The  matter  should  be  constantly  changed.  I  do  not  believe 
in  giving  away  anything,  and  posters,  bills  and  programmes 
have  proved  of  no  value  in  our  business." 

Twelfth.  The  manager  of  Browning,  King  &  Co.  said: 
"Whenever  I  have  specialties  I  always  use  the  daily  papers 
and  advertise  them,  because  so  many  people  are  reached  in 
that  way." 

Thirteenth.  J.  W.  Tuttle,  of  the  Parisian  Suit  Company 
said:  "I  believe  in  newspaper  advertising  as  against  any  and 
every  other  kind  of  advertising.  It  does  any  business  good." 

Fourteenth.      F.    M.    Atwood   said:       "Mere    notoriety 
name,  does  not  attract   people.      Everybody  may  know  John 
Smith's  name  and  yet  be  ignorant  of  how  he  conducts  his  busi- 
ness.     It  is  the  favorable  reputation  of  the  goods  that  is  the 
most  effective  kind  of  advertising." 

fifteenth.  The  next  trade  investigated  was  the  furniture 
business.  J.  F.  Revell,  vice-president  of  Alexander  H.  Revell 
&  Co.,  said:  "  When  you  have  a  bargain  let  the  people  know 
it.  That  has  been  our  policy  for  years;  we  have  been  very 
successful.  We  have  tried  wall  advertising  and  other  forms, 
but  nothing  pays  like  the  Sunday  papers.  We  have  tried  pro- 
grammes, but  have  discontinued  using  them." 

Sixteenth.  The  president  of  the  Tobey  Furniture  Company 
said:  "We  restrict  our  advertising  to  the  daily  papers.  \Ye 
have  made  up  our  minds  that  this  is  the  most  profitable  for 
us." 

Seventeenth.    Leaving  the  furniture  trade  the  reporter  called 


402  COMMERCIAL  CREDITS. 

upon  various  prominent  merchants  in  a  number  of  different  lines. 
The  manager  of  N.  K.  Fairbanks  &  Co.,  said:  "  We  use  every 
method  of  advertising  and  are  satisfied  that  it  pays  to  adver- 
tise, but  what  particular  form  of  advertising  brings  the  best 
returns  it  is  difficult  to  judge." 

Eighteenth.  Wallace  Kirk,  of  James  S.  Kirk  &  Co.,  said: 
"  We  have  tried  all  kinds  of  advertising  in  past  years,  and 
have  come  to  the  conclusion  that  the  newspapers  yield  the 
best  returns.  Advertising  may  bring  business  slowly  at  first, 
but  if  it  is  continued  steadily  it  pays." 

Nineteenth.  Charles  H.  Slack,  a  grocer,  said:  "I  keep 
men  busy  all  the  time  arranging  stock  in  the  store  and  out- 
side so  as  to  attract  the  eye  and  tempt  the  palate.  That  in 
itself  is  a  powerful  advertisement  and  we  draw  our  customers 
principally  through  advertisements  in  the  newspapers." 

Twentieth,  Lyon  &  Potter,  music  dealers  are  quoted  as 
follows:  "The  main  idea  is  to  familiarize  the  public  with 
your  name  and  identify  it  with  the  articles  you  have  for  sale. 
We  believe  in  telling  the  people  the  facts.  We  use  theater,  con- 
cert and  entertainment  programmes  to  advertise  our  business, 
because  they  reach  a  musical  class.  We  use  the  country  papers 
to  a  moderate  extent.  WTe  have  used  one  of  the  magazines,  intro- 
ducing a  vocalion  organ  and  have  had  prompt  letters  from  all 
over  the  country  and  also  from  Europe,  inquiring  about  and 
ordering  that  particular  instrument.  It  is  hard  to  compute  or 
ascertain  the  direct  results  of  advertising.  The  only  question 
is  what  is  the  most  judicious  method,  and  it  is  a  hard  conun- 
drum to  tell  how  much  to  do  and  what  not  to  do." 

§  559.  The  Satirical  in  Advertising.  Examples  of  the 
satirical  and  burlesque  in  advertising  are  to  be  seen  almost 
daily.  Whether  this  kind  of  advertising  pays  depends  very 
largely  upon  the  personality  of  the  advertiser  and  the  line  of 
business  to  be  advertised.  We  give  herewith  a  sample  of  this 
class  of  advertising.  There  used  to  be  a  characteristic  sign 
hanging  outside  of  42  Duane  street,  New  York,  which  attracted 


THE  ART  AND  PRACTICE  OF  ADVERTISING. 


403 


marked  attention  from  passers-by,  on  account  of  its  peculiar 
statement.  This  sign  was  displayed  until  a  short  time  ago 
when  it  mysteriously  disappeared,  and,  though  it  has  been 
extensively  advertised  and  liberal  rewards  offered,  it  has  not 
been  returned.  It  hung  tor  twenty-five  years  at  the  foot  of 
the  stairs  leading  up  to  Mr.  Kepler's  printing  office  : 


Os  car  E  Kepler 

ThePoorestPrinter 

In  the  World 

No  attention  whatever  paid  to  onfers 
prices  higher  than  any  other  honsejnii 
17  small  business card8for$TOBjjifo](( 
other  work  in  proportion. 

"How  this  world  is  givcnto lying 


404  COMMERCIAL  CREDITS. 

Mr.  Kepler  once  issued  a  circular  or  business  card,  which 
indicates  that  he  believes  in  this  kind  of  advertising.  It  was 
as  follows  : 


[Established  4  hours,  3  minutes,  2%  seconds  (Greenwich  time) 
before  breakfast  next  Saturday.] 


KEPLER. 
Poorest  Printer  in  the  World. 

42   Duane   Street,   Ne^  YorK. 


No  attention  whatever  paid  to  orders;  work  guaranteed  poorer 
and  prices  higher  than  any  other  house  in  the  world;  17  small  cards, 
5  billheads,  2  circulars  and  6  envelopes  for  $175,618  in  gold;  smaller 
orders  in  proportion.  All  work  executed  sometime  during  the  next 
century  and  perfect  dissatisfaction  given. 

Refer,  by  permission,  to  Queen  Victoria,  Mary  Ann  Johnson,  King 
William,  Johnny  Shine,  the  Czar  of  Russia,  Bill  Smith  and  all  the 
crowned  heads  of  the  Old  World,  washer-women,  boot  blacks  and 
gentlemen  of  America. 

We  make  a  specialty  of  printing  owls  in  black  ink  on  common  pa- 
per, and  flatter  ourselves  we  are  good  at  that.  Having  recently  added 
two  square  inches  to  our  heretofore  limited  establishment,  at  an  in- 
creased outlay  of  ten  cents  per  annum,  we  are  now  enabled  to  produce 
these  wise  and  indispensable  birds  in  a  manner  never  accomplished 
before.  For  specimen,  see  other  side. 

"How  this  world  is  given  to  lying." 


§  560.  Show  Window  Advertising.  There  is  some  dis- 
pute among  advertising  experts  concerning  what  the  window 
show  should  be  in  front  of  a  store.  Some  think  that  anything 
which  is  really  novel  and  attractive  will  tend  to  draw  people 
inside;  while  others  claim  that  the  better  plan  of  advertising 
is  for  the  merchant  to  stick  to  his  business  text  and  display 
nothing  which  does  not  directly  represent  what  the  dealer  has 
to  sell.  For  instance,  you  may  put  a  live  fox  and  its  litter  of 
young  foxes  in  the  window  of  a  fur  store,  the  party  of  the  sec- 
ond part  would  say;  but,  in  a  store  for  the  sale  of  clothes-pins 


THE  AUT  AND  PRACTICE  OF  ADVERTISING.  405 

exclusively,  it  would  be  better  to  build  up  a  wooden  fox  out  of 
the  clothes-pins  themselves. 

This  contestant  thinks,  therefore,  that  it  is  not  safe  to  let  a 
possible  customer  forget  for  a  moment  what  it  is  you  wish  to 
tell  him;  while  the  party  of  the  first  part  believes  that  any 
striking  feature  or  tableau  that  compels  people  to  pause  and 
look  in  the  door  or  window  will  bring  up  the  subject  of  the 
dealer's  business  indirectly  with  quite  as  much  effect.  The 
show  of  the  goods  themselves  seems  certainly  to  have  the  lead 
in  practice — partly  because  it  is  the  easiest  thing  to  do,  and 
almost  always  has  been  done.  Where  the  goods  are  not  en- 
ticing, from  the  very  nature  of  them,  but  must  be  purchased, 
the  display  is  not  omitted  any  more  than  where  they  suggest 
beauty. 

It  has  always  been  a  matter  of  wonder  to  me,  though,  that 
the  undertaker  displays  his  goods  in  the  window  and  front  of 
his  store.  But  he  does — just  as  much  as  if  the  passers-by 
were  anxious  to  be  his  customers.  It  would  seem  as  if  here 
was  one  instance,  at  least,  where  the  display  of  goods  them- 
selves might  be  dispensed  with  to  advantage;  and  (a  sufficient 
si^rn  being  given  to  determine  the  nature  of  the  store)  the  front 
space  could  be  used  as  an  attractive  reception  room,  where 
Mowers  and  things  artistic  might  abound.  You  cannot,  of 
course,  put  out  of  sight  always  the  inevitable  necessities  which 
the  trade  is  organized  to  supply;  but  it  would  seem  as  if  they 
ini^ht  be  somewhat  less  paraded.  A  softening  of  the  fact  of 
death,  by  making  the  ante-chamber  leading  to  its  furniture 
and  symbols  in  a  measure  disassociated  from  them,  ought 
really,  I  should  say,  to  be  a  benefit. 

There  are  other  branches  of  business  which  display  their 
goods  profusely,  and  without  fail,  who  certainly  suffer  by  it  in 
one  respect.  And  these  are  the  green  grocer  and  provision 
man.  Fish  and  clams  and  meat  and  garden  stuffs  are  never 
exposed  in  hot  summer  days,  or  for  the  most  of  the  year,  with- 
out injury.  And  yet  I  never  saw  a  green  grocer  or  fish  dealer 


406  COMMERCIAL  CREDITS 

or  butcher  who  would  think  it  possible  to  continue  his  business 
if  he  did  not  put  on  the  sidewalk,  in  front  of  his  store,  a  most 
bountiful  supply  of  the  most  perishable  goods  imaginable. 
You  see  the  same  samples  there  day  after  day,  greatly  to  their 
detriment;  and,  of  course,  they  are  the  best  the  store  affords, 
or  they  would  not  be  on  show.  Two  things  result  from  this: 
Either  they  are  sold  to  the  customer's  disadvantage,  finally,  or 
they  are  ultimately  thrown  away,  after  having  served  their 
advertising  purpose. 

How  would  it  do  for  a  green  grocer  or  fish-monger  to  say 
to  his  customers:  "  I  don't  want  to  lose  the  value  of  my  best 
stock  by  using  it  for  sign  purposes;  and  you  don't  want  to  buy 
it  half  stale,  after  it  has  been  so  employed.  I  purpose,  here- 
after, to  keep  all  my  goods  in  a  cool  place  inside,  and  you  shall 
know  what  they  are  by  significant  placards  and  transforma- 
tion pictures  in  front?"  Would  not  such  a  grocer  or  provis- 
ioner  gain  by  this  plan,  or  would  he  lose  enough  custom  to 
more  than  counterbalance  the  assured  economies  attained?  It 
would  be  interesting  to  get  some  experienced  opinion  on  this 
point,  which  one  who  has  been  in  either  of  these  businesses 
must  certainly  have. 

Speaking  of  signs  and  shows  in  front  generally  there  is  no 
doubt  that  any  good  devices  or  novelties  which  attract  do 
good,  and  cannot  ordinarily  be  skipped.  But  each  business 
and  each  particular  dealer  will  follow  his  own  intuition  on  the 
subject,  rather  than  obey  a  hard  and  fast  literal  rule.  At  the 
same  time,  it  seems  as  if  some  businesses  get  along  by  news- 
paper advertising  alone.  It  is  true,  I  believe,  that  A.  T.  Stew- 
art, for  the  whole  noted  period  of  his  life,  if  not  from  the  very 
commencement  of  his  business  career,  never  used  show  win- 
dows. His  windows  were  always  close  curtained,  which  kept 
the  light  from  injuring  his  goods.  If  you  wished  to  know 
what  he  sold  you  had  to  go  deliberately  to  the  inside  of  the 
store.  If  you  did  not  know  where  the  store  was,  you  were 


THE  ART  AND  PRACTICE  OF  ADVERTISING.  407 


obliged  to  inquire,  as  he  put   out — so   far  as  I  remember — no 
outward  sign. 

The  store  windows  that  people  are  surest  to  stop  in  front 
of,  according  to  my  observations,  are  those  in  which  some 
marionettes  or  dancing  figures  are  to  be  seen.  No  matter 
how  simple  they  are  a  crowd  is  almost  always  before  them. 
But  I  do  not  think  one  per  cent,  of  that  crowd  ever  goes  in 
the  store,  that  they  stand  before,  to  trade  ;  counting  solely 
those  who  go  in  through  the  agency  and  invitation  of  the 
dancing  images." 

$561.  Advertising  Agencies — Placing  Advertisements. 
First.  Whenever  a  man  decides  to  commence  upon  a  course 
of  advertising,  the  question  arises,  how  shall  he  manage  the 
matter  of  placing  the  advertisement  with  the  different  period- 
icals that  he  elects  to  use?  Shall  an  advertising  agency  be 
employed,  shall  estimates  be  obtained  of  the  cost  of  a  card  in 
a  certain  number  of  periodicals,  and  shall  labor  be  saved  by 
giving  the  order  in  a  lump  and  paying  the  bills  in  a  lump,  or 
shall  the  advertising  have  the  individual  attention  of  the  pro- 
prietor, and  shall  he  come  into  immediate  contact  with  the 
people  in  the  direction  of  the  several  periodicals  in  which  he 
proposes  to  advertise?  These  are  pertinent  questions,  and 
they  are  of  importance  to  advertisers  in  general.! 

Second.  The  great  argument  of  the  advertising  agencies  is 
that  they  save  the  business  public  time  and  money.  They 
undertake  to  save  time  by  attending  to  the  details  of  orders 
for  advertisements,  checking  the  publications  ana  paying  the 
bills.  They  claim  to  save  money  by  quoting  a  lower  lump 
price  than  the  aggregate  of  the  figures  that  would  be  made  to 
the  individual  advertiser  should  he  inquire  the  rates  of  all  the 
different  papers.  This,  as  we  understand  it,  is  what  the  agen- 
cies claim,  and  about  all  that  they  claim.  The  question  then 
arises,  is  there  enough  advantage  in  this  to  warrant  an  agency 
being  employed,  in  view  of  the  loss  of  the  advantages  which 

cjoel  Benton,  in  Printer's  Ink,  Aug    24,  1892. 


408  COMMERCIAL  CREDITS. 

follow  from  direct  contact  with  the  proprietor,  editor  and  ad- 
vertising solicitor  of  each  individual  periodical,  all  of  whom 
are  eager  to  extend  courtesies?  This  is  a  question  for  the 
consideration  of  every  business  man. 

Third.  With  all  due  respect  to  the  advertising  agencies, 
and  with  a  full  knowledge  of  the  fact  that  their  services  are 
indispensable  in  some  lines  of  business  and  in  numerous  in- 
stances, we  still  think  that  the  advantages,  in  small  establish- 
ments, particularly,  which  follow  from  personal  contact,  are 
not  to  be  gain-said.  Accordingly  in  those  cases  where  we 
have  the  opportunity  to  give  advice  we  urge  the  advertiser  to 
keep  his  business  in  his  own  hands. 

With  many  men,  advertising,  at  best,  is  a  blind  pool.  But 
it  should  not  be  a  blind  pool  any  longer  than  it  requires  for 
practical  experience  to  point  out  the  correct  method.  Adver- 
tising is  a  blind  pool  only  because  of  the  poor  and  inade- 
quate methods  that  are  current  in  its  management.  It  ceases, 
to  be  a  blind  pool  whenever  the  advertising  done  is  restricted 
to  the  amount  that  can  be  intelligently  supervised.  After  the 
methods  are  learned,  after  practice  has  been  acquired,  and 
the  advertising  manager  knows  of  himself  just  what  he  wants 
to  do,  is  the  time  and  opportunity  for  extending  the  field  and 
calling  to  his  assistance  the  agencies  and  doing  the  business 
upon  a  larger  scale. 

We  advise,  therefore,  at  the  out-set  that  advertisers  come 
in  contact  with  the  publisher,  editor  and  solicitor  as  often  as 
possible.  Do  this  by  correspondence  if  you  cannot  do  it  by 
personal  calls.  You  will  find  that  it  will  help  you  in  a  wayj 
that  no  advertising  agency  will  help  you,  no  matter  how  great 
the  advantages  of  the  agency  may  be  in  other  directions/ 

$  562.  Methods  of  Advertising.  Here  are  a  few  ideas 
on  advertising  which  are  at  least  different  from  most  of  what 
is  published  on  that  subject,  and  may  perhaps  lead  one  or  two 
readers  to  new  thought. 

''The  Office,  March,  1891. 


THE  ART  AND  PRACTICE  OF  ADVERTISING.  409 

Two  very  successful  men  and  large  advertisers  may,  in  my 
opinion,  be  said  never  to  have  used  a  "joking"  or  a  "ginger- 
bread," flaring  style  in  advertising.  I  refer  to  A.  T.  Stewart 
and  P.  T.  Barnum.  In  no  advertisement  or  circular  of  A.  T. 
Stewart  did  I  ever  see  anything  but  the  most  serious  setting 
forth  of  his  claims,  no  criticising  of  rivals,  no  large  type,  no 
full  pages,  no  tinsel,  everything  as  business-like  as  the  langu- 
age a  salesman  would  use  with  his  most  dignified  or  "touchy" 
customer. 

As  to  Barnum  you  do  not  find  him  indulging  in  any  light, 
discursive  talk  in  print.  The  language  of  his  advertisements 
may  be  exaggerated,  but  they  are  always  to  the  point.  He 
always  has  something  to  say,  and  he  says  it,  says  it  in  an  in- 
spiring way;  that  is,  in  a  way  to  inspire  belief  and  a  wish  to 
see  what  he  has.  Read  his  next  advertisement  and  see  if  you 
don't  want  to  go  to  the  -show. 

In  my  writing  of  advertisements  I  always  keep  before  me 
the  fact  that  it  is  to  cost  so  much  a  line,  and  every  word 
counts  and  must  be  made  to  tell.  I  think  if  some  advertisers 
would  go  over  their  advertisements  as  one  does  over  a  tele- 
gram they  would  find  ways  to  condense  without  loss  of  effect. 
I  like  to  see  an  advertisement  plain  and  legible.  I  do  not 
think  much  trade  is  gained  from  puzzles.  Make  an  adver- 
tisement so  that  it  can  be  read  at  a  glance,  unconsciously  and 
involuntarily.  It  ought  to  be  in  type  large  enough  for  people 
who  use  spectacles,  unless  the  advertiser  thinks  he  does  not 
want  such  people  to  read  his  advertisement/ 

$  563.  About  Writing  and  Displaying  Advertisements.  It 
is  as  important  that  an  advertisement  should  be  attractively 
displayed  as  that  it  should  be  well  written.  The  effectiveness 
of  a  well  written  advertisement  is  greatly  augmented  by  its 
being  set  in  such  a  manner  as  to  attract  the  eye. 

Before  writing  your  advertisement  a  good  plan  would  be 
to  study  upon  the  technical  terms  of  printing  and  familiarize 

e  Business,  M 


COMMERCIAL  CREDITS. 


yourself  with  the  different  styles  of  type.  Most  printing  of- 
hces  have  a  book  of  samples  of  the  type  they  have,  and  these 
will  aid  you  very  materially  in  selecting  the  style  of  type  to 
be  used  and  in  marking  your  copy  correctly. 

If  you  wish  a  row  of  fists  or  stars  mark  your  copy,  designat- 
ing which. 

If  you  desire  a  border  mark  your  copy  stating  what  style. 

Mark  your  copy  exactly  as  you  wish  it.  If  you  desire  it  in- 
dented, state  how  many  ems  each  side  and  whether  you  wish 
it  solid,  single  leaded,  double  leaded,  triple  leaded  or  slugged. 

§  564.  Measuring  Advertisements.  Different  papers 
have  different  methods — because  the  advertisers  do  not  ob- 
ject, perhaps — for  measuring  advertisements.  Advertisements 
are  usually  charged  at  so  much  per  line,  agate  or  nonpareil, 
as  the  case  may  be.  Borders,  changes,  etc.,  are  generally 
charged  extra.  The  charges  are  so  much  a  line  whether  dis- 
played or  not — one  inch  measuring  so  many  lines  of  type. 

Now.  I  believe  that  an  advertisement  should  be  measured 
and  charged  for  the  actual  space  occupied  by  the  type  matter 
—except,  of  course,  where  white  space  is  ordered  above  or 
below.  About  nine-tenths  of  the  publications  in  the  United 
States  charge  for  actual  space,  the  other  one-tenth  insist  upon 
a  measure  between  advertising  rules. 


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THE  ART  AND  PRACTICE  OF  ADVERTISING.  411 

•The  plea  advanced  by  publishers  who  think  rule  to  rule 
measure  is  the  proper  standard  can  be  briefly  shown  unsound. 
They  say  they  must  get  so  much  a  column  for  advertising, 
irrespective  of  size  or  number  of  advertisements.  Let  us  see. 
In  large  dailies  different  rates  are  charged  for  advertisements 
classed  as  amusement,  display,  wants,  etc.  Say  a  column 
contains  280  lines,  and  seventy  advertisers  each  order  a  four- 
line  want  advertisement — will  the  column  hold  them  all?  Of 
course  not.  The  rules  between  these  four  liners  would  amount 
to  at  least  thirty  lines — a  dead  loss  to  the  publisher.  No 
matter  whether  a  publisher  measures  between  rules,  I  have 
yet  to  hear  of  an  instance  where  a  want  advertisement  of  four 
or  more  lines  was  charged  for  more  than  the  actual  number 
of  lines. 

Another  reason  why  advertisements  should  all  be  measured 
for  space  occupied  by  type  matter,  is  that  some  uniform  sys- 
tem is  better  for  all  concerned,  then  there  will  be  little  or  no 
opportunity  for  unprincipled  middle  men  or  agents  securing 
business  from  ignorant  advertisers  except  on  their  merits. 

The  story  is  told  where  advertisers  have  secured  bids  from 
various  agencies  for  a  given  service,  and  after  awarding  the 
business  to  the  lowest  price  concern,  found  thai  their  electro- 
types have  had  enough  dashes  or  surplus  space  cut  out  to 
allow  the  tricky  bidder  two  lines  or  more,  which,  at  the  rate 
charged  by  the  Youth"  s  Companion,  would  be  $4  a  line,  gross. 
The  blank  space  at  top  and  bottom,  which  few  papers  charge 
for,  thus  became  an  accessory  before  the  fact — unconsciously, 
of  course — as  not  one  advertiser  in  a  thousand  ever  thinks  of 
measuring  other  than  between  rules,  and  two  agate  lines 
would  be  made  up  by  the  top  and  bottom  space  mentioned. 

Who  will  dispute  the  justice  of  paying  for  actual  space 
occupied  by  advertisement!  f 

$565.  Negatives  for  Advertisers.  First.  Do  not  adver- 
tise your  competitor  by  even  so  much  as  mentioning  his  goods. 
Show  up  the  merits  of  your  own,  and  let  him  take  care  of  his. 

'G.  N.  Powell,  in  Printer's  Ink,  Sept.  7    1892. 


.412  COMMERCIAL  CREDITS. 

Second.  Do  not  advertise  until  you  have  a  well-thought- 
out  plan,  and  then  stick  to  the  plan. 

Third.  The  great  aim  should  be  to  get  the  greatest  amount 
of  effect  for  the  least  money.  An  advertisement  without 
effect,  though  it  may  cost  less,  is  too  dear  to  pay. 

Fourth.  Do  not  try  to  trip  any  one  into  reading  your  adver- 
tisement by  starting  out  with  a  funny  story.  People  do  not 
like  to  be  tricked — they  are  not  pleased,  and  your  money  is 
thrown  away. 

Fifth.  Do  not  try  to  make  a  customer,  who  has  favored 
you  with  his  patronage,  an  unwilling  advertiser  of  your  goods 
by  putting  your  advertisement  on  the  paper  with  which  you 
wrap  his  goods.  The  lady  was  right  who  said,  "  Please  turn 
that  paper  over."  Do  your  advertising  in  the  newspapers,  it 
pays  best  anyway. 

Sixth.  Do  not  keep  one  advertisement  running  until  every- 
body is  tired  of  it.  Change  frequently.  People  like  a  change. 

Seventh.     There  should  be  a  point  to  every  advertisement 
State  your  point  and  stop.     Do  not  keep  on  just  to  fill  the 
space. 

EightJi.  Do  not  crowd  a  whole  continued  story,  set  in 
small  type,  in  a  two  or  three  inch  one  column  space,  and  then 
imagine  that  you  are  advertising.  Such  advertisements  do 
not  advertise. 

Ninth.  Do  not  fill  your  space  in  the  paper  by  such  non- 
sense as,  "Look  in  this  space  next  week,"  or  "This  space  is 
reserved  for  John  Kasnooks." 

Tenth.  Do  not  advertise  one  time  and  then  stop.  "  Keep' 
ing  everlastingly  at  it  brings  success."  Advertisements  placed 
last  year  will  not  bring  in  orders  today,  no  more  than  the 
quinine  which  you  took  last  year  will  break  up  the  ague  which 
shook  you  last  night. 

Eleventh.  Have  your  advertisement  worded  and  displayed 
so  that  the  first  line  attracts  attention.  People  are  not  hunt- 


THE  AKT  AND   PK.M  TICI;  OF   ADVKKTISIM.. 

ing  your  advertisement  in  order  to  read    it.      You    must    angle 
for  them. 

Twelfth.  Do  not  stop  advertising  as  soon  as  trade  gets 
dull.  Keep  your  business  before  the  people.  They  may  not 
want  your  wares  today,  but  they  may  tomorrow  or  the  next 
day. 


INDEX  TO  THE  BUSINESS  OF  BUNKING. 


ABOLITION.  SEC. 

1.  Of  bank  identification 315 

2.  Of  dating  ahead 312 

3.  Of  days  of  grace 457 

4.  Of  protest 433 

ABRASION  OF  GOLD 369,  376 

ACCEPTANCE.      See  BUSINESS 

PAPER. 
ACCOMMODATION  PAPER...  188 

See  BUSINESS  PAPER. 
ADVICE  TO  BANK  CLERKS. 

.283-282 

AGENT 

i.   To  take  reserve  from  receiver,  129  j 

ALLOY 371 

APPLICATION. 

r     Of  payment 265   j 

APPROVED     RESERVE 

AGENT      87-93 

ASSESSMENT.     See  TAXATION. 

ASSIGNING  SECURITIES 162 

ASSORTING. 

1.  Bank  notes 417 

2.  Checks 481 

3.  Clearing  exchanges 489 

AUCTION. 

i.    Sale  of  shares  at,  44,46,  104,  109  ! 

BAD    DEBTS 55,  249  I 

B\()  JUDGMENT. 

i.   Of  directors 

BALANCING  PASS  BOOKS  ..  .409  ! 
BANKS  AND  BANKING. 

1.  Benefit  to  society 232 

2.  Closed  bank,  selling  effects  of ,  126 

3.  Duty  to  customers 187 

4.  Expenses,  Profits,  etc 14 

See  PROFITS. 

5.  Highest  function  of 183,  184 

6.  Hours 424 

7.  Kinds  of 15 

8.  National 16.  26-153 


BANKS  AND  BANKING— 

( 'ontinued. 
9.   Object  of 232 

10.  Of  Amsterdam    

11.  Of  England   <> 

12.  Of  Genoa 7 

13.  Of  North   America 10 

14.  Of  the  United  States n 

15.  Of  Venice t> 

16.  Origin  of  modern    5 

17.  Origin  of  the  word  bank 4 

18.  Private 21 

19.  Prohibited 26 

20.  Regulating  capacity 233 

21.  State  institutions 17-20 

22     Utility  of 13 

23.   Wild-cat  and  red-dog 12,   i  s 

HANK    BILLS    AND    NOTES. 

See  CIRCULATING  NOTES. 
BANK  CLERKS. 

1.  Advice  to 2^ 

2.  See  PAYING.  RECEIVING  and 

NOTE  TELLERS,  and  COL- 
LECTION, CORRESPONDING 
and  DISCOUNT  CLERKS. 

BANK  EXAMINATION....  135.  136 

BANK  INSPECTION.... 

BANK'S  LIABILITY. 

1.  For  cashier's  acts 268 

See  CASHIER. 

2.  For  collections 466 

3.  For  deposits 20.) 

4.  For  failure  to  give  notice.  .  .  .270 

5.  For  loss 338,  447 

6.  For  cashier's   misconduct.    ..271 

7.  For  other  acts 

BANK  LITERATURE 450 

BANK  RECORDS.     See  BOOKS 
BANKING  ROOMS.    SeeCASHiER 
HANKERS     SeeCASHiER. 
BANKER'S  LIEN 365 


4i6 


INDEX  TO  THE  BUSINESS  OF  BANKING 


BILLS  DISCOUNTED  ....427,  443 
BOARD  OF  DIRECTORS. 

See  DIRECTORS. 
BONDS. 

1.  Amount  of 71 

2.  Cancellation  of no 

3.  Dealing    in 195 

4.  Deposited  to  secure  circula- 

tion     67-77 

5.  Examination  of 77 

6.  Failure  to  take  up 104 

7.  Forfeiture  of 106 

8.  How  held 73 

9.  Not  to  be  taken  to  pay  pro- 

test fees 105 

10.   Official. 30,  129,  214,  219-222,  284 
n.   Re-assigned 102 

12.  Revocation  of   official 222 

13.  Sale  of 109 

BOOKKEEPER  AND  BOOK- 
KEEPING   475-48: 

1.  Accuracy 476 

2.  Assistants 477 

3.  Care  of  cancelled  checks,  410,  481 

4.  Eternal  vigilance 478 

See  ETERNAL  VIGILANCE. 

5.  Mistakes  of 479 

6.  New  methods 475,  477 

7.  Small    banks 480^7 

8.  Statements  of 243,  476 

9.  Systems    of 47^,  480 

10.   Wrongs  of 271 

BOOKS 480,  48cw 

See  PASS  BOOK. 

1.  Collections 450,  451 

2.  Collection   register 453 

3.  Dealer's  credit  book 231 

4.  Discount 442 

5.  Failure  to  examine 169 

6.  Improved  forms 465 

7.  Letter  book 251,  252 

8.  Mistakes   in 479 

9.  Offering  book 439 

10.   Pass  book  as    evidence 479 

n.   Record  of  collateral 446 

12.  Signature  book 253,  307 

13.  Ticklers 243,  443,  454 

BRANCH  BANK 178 

See  PLACE  OF  DOING  BUSINESS. 
BULLION.  See  GOLD,  SILVER,  etc. 
BUSINESS  PAPER. 

1.  Accommodation  ....  184-188,  458 

2.  As  money 290-292 

3.  Conditional 182 

4.  Documentary 185,  458 

o  5.   Foreign 451 


SEC. 

BUSINESS  PAPER— Continue* 

6.  Lost  or  stolen 351,  464,  466 

7.  Powers  of  bank  to  buy 182 

8.  Presentation  of 470,  471 

9.  Real 184,  187,  188 

10.  Small  paper 472 

CALCULATING  TIME 44r 

CANCELLED  CHECKS 48i 

See  CHECKS. 
CAPITAL. 

1.  Amount  required  for  national 

banks 38 

2.  How  divided 39 

3.  Increase  of 65,  176 

4.  Not  to  be  withdrawn  as  divi- 

dends     55 

5.  Reduction  of 66 

6.  Selling  increased  stock 177 

CARAT 371 

CASHIER 218-279 

1.  See  DIRECTORS  and  PRESIDENT. 

2.  Acting  as  president 232 

3.  Appointment 218 

4.  Application  of  payment 265 

5.  As  manager 179,  223  .232 

6.  Authority,    sources  of 254 

1.  Restricted 270 

2.  To  borrow  money 256 

3.  To  certify  checks 257 

4.  To  collect  debts 260 

5.  To  compromise 261 

6.  To  discount.  ..  173,  262.  439 

7.  To  indorse 258-260 

8.  To   issue  certificates  of 

deposit    255 

9.  To    re-discount 263 

10.   To  sign 250,  404 

n.   To  transfer  stock 264 

7.  Bank  bound  by  his  acts   270 

8.  Bond,  official 219-222 

9.  Care  of  vaults    27  5 

10.   Cannot  avoid  losses 238 

n.   Cannot  act  when  bank  is  ad- 
verse party 267 

12.  Cannot  assign  a  non-negotia- 

ble note 267 

13.  Cannot     discount     his     own 

notes   262 

14.  Cannot  draw  a  check  for  per- 

sonal use    267 

15.  Cannot  sell   bank's  propertv, 

and  other  limitations -.?<"> 7 

16.  Correcting  mistakes _•<><-> 

17.  Correspondence,   the 251 

i  S.    Courtesy  to  dealers 273 

19.   Customer's  credit  book.  ...      231 


INDEX  TO  THE  BTSIN  \KING. 


41? 


CAS  1 !  I V. K  —  ( 'on tinned. 

:  >aily  routine 252 

21.  1  >ealers,    list  of ^73 

22.  Decisions  regarding  certifica- 

tion     459 

23.  Detecting  a  plunderer .'45 

24.  Deviation  from  settled  policy,  248 
25     Dishonest    gains 241 

26.  Division  of  vaults 286 

27.  Duties,   various 273 

28.  Duty,    neglect  of 271 

29    Duty  to  know  borrowers 242 

30.  Enforcing  payment 247 

31.  Engagement  in  other  business,227 

32.  Examining  the  collateral  .  .  .  .446 

33.  Examination  of  dealers'  con- 

ditions   231 

34.  Failure  to  give  notice 270 

35.  Fault  finding 273 

36.  Fraud,  liability  for 271 

37.  Future   resources 243 

38.  General    supervision 272 

39.  Information     regarding     the 

business    273 

40.  Keeping  rooms   neat.... 273,  281 

4 1 .  Kiting    237 

42.  Liability  of  banks  for  his  acts,  268 

43.  Liable  for  fraud 271 

44.  Limitation  of  his  powers 267 

45.  Loans.    See  LOANS. 

46.  Markets 230 

47.  May  borrow  of  his  bank 161 

48.  Misconduct 271 

49.  Mistakes 266 

50.  Model  business    man.  ......  .478 

5 1 .  Neglect  of    duty 271 

52.  New  customers 253 

53    Official    bond 219-222 

54.  Overdrafts --40 

55.  Faying  taxes,    rent,  etc 273 

56.  Powers,  limitation  of 267 

57.  Prospective  loans 244 

58.  Regulating  future  resources.  .243 

59.  Responsibility  for   conduct  of 

clerks 272 

60     Responsibility  for  cash 273 

<>i     Responsibility  for    deposits.  .269 

62  Responsibility  for  other  acts. 270 

63  Responsibility  for  results.  ...  179 
(•4     Reversing  the  paying  teller's 

decision 322 

f>s     Robbery 245,  269 

\ooms,  keeping  neat.  ..  .273,  281 

-alary 181,  228 

68.   Scrap    book 231 

69    Seeking  information.  ..  .231,  273 


CASHIER      Continued.  SEC. 

70.  Special  examination  of    deal- 

ers  231 

7 1 .  Supervision 272 

72.  Test  of  his  merits 249 

73.  Theft  of 269,  420 

74.  Vaults 245,  273 

75.  Watching  the  markets 230 

CERTIFIED.CHECKS.  See  CER- 
TIFICATION and  CHECKS. 

CERTIFICATION. 

62,  257,    322-329,  412,  450 

1.  Forged 327 

2.  Over-certihcation 62,  322 

3-   Small 323 

4.   What  is  certification? 324 

CERTIFICATES  OF  DEI'OSI  I  , 

^55.  3is,  346-351 

1.  As  note   341; 

2.  Issue  not  forbidden 34  cS 

3.  Lost  or  stolen 

4.  Negotiability  of 447 

5.  Not  money 

6.  Statute  of  limitations  .  .  .  .  y 

7.  Time  certificates 341, 

CHECKS 315-343,  354-3'-' 

1.  Addressed  to  some  one 207 

2.  Amount  on 

3.  As  payment  for  collection  .  .  .  .45-", 

4.  Bad  check  in  clearings.  . . 

5.  Bearer.  . .  .300,  308,  315,  34 
6  Cancelled 3^- 

7.  Cancelled  by  mistake.  .  .270,  321 

8.  Care  of   paid  and  cancelled 

checks 410.  4>i 

9.  Certification  of 3. 

10.  Charging  certified 

11.  Clearing-house  checks, 

289, '31  s.  411,49 

12.  Collection  of     »• 

13.  Crossing  system 

14.  Date  of joS 

15 .  Days  of  grace 301 

16.  Defined 29^ 

17.  Delay  in  payment 310 

1 8.  Drawn  on  depositary 421 

19.  Duty  to  pay 300 

20.  Estopped •, 

21.  Examining  ...  .304  308,  3^8.  413 

22.  Filling  up 

23.  For   "39.67" 

24.  Giving  check  to  strangers  .  .  ./pj 

25.  How  to  draw 294-300.  335 

26.  Indorsed 358,  359 

See  INDORSEMENT. 


4iS 


INDEX  TO  THE  BUSINESS  OF  BANKING. 


CHECK  S — (.  \>ntinucil.  SEC  . 

27.  Intended  for  immediate  pay- 

ment      343,  355 

28.  Keeping  old 410,  481 

29.  Kiting       See  KITING. 

30.  Large  and  small    335 

31.  Methods  of  check  raisers  .  .  .  .333 

32.  Nature  of 355 

33.  Not  absolute  payment 366 

34.  Object  of    293 

35.  Order  of  paying 495 

36.  Part  payment 311 

37.  Payable  on  demand 299 

38.  Payable  to  bearer 

300,  308,  315.  342.  345 

39.  Payable  to  order 308,  315 

40.  Payable  to  some  one 300 

41    Payment  estopped 302,  309 

42.  Payment  of 303-345 

43.  Payment  of  by  insolvent 

bank   352 

44.  Payment  of  forged 336-341 

45.  Post-dated 301,  312,  413 

46.  Preparing  for  Clearing-house, 

489 

47.  Presentation  for  payment, 

301-  343.  354-359.  4^2 

48.  Prevention  of  check  raising.  .333 

49.  Raised 315,  329'334^ 

50.  Receipt  for  payment 319 

51.  Return  of  bad  checks  from 

Clearing-house %-495 

52    Signature  of 294,  306 

53.  Small  certification 323 

54.  Uncollected 353 

55.  When  due 343 

CHARTER 43,  440-48 

CIRCULATING  NOTES. 

1.  Amount  of  *. 78 

2.  As  money 291 

3.  As  security 60 

4.  Branding  counterfeits.  . .  .97,  403 

5.  Closed-bank  notes 124 

6.  Counterfeit.       See  COUNTER- 

FEIT. 

7.  Destruction  of 86,  103,  no 

8.  Imitation  84 

9.  Issuing 78-110 

10.  Issue  of  other  notes 96 

n.   Legal  tender 82,  388 

12.  Mutilated 85,  86,  103 

13.  Redeeming 78-110,  388-396 

14.  Re-issue  of 47 

15.  Refusal  to  redeem 105,  106 

16.  Restriction 97 

17.  Retiring  part  of 72,   76 


CIRCULATING  NOTES—          SEC. 
Continued. 

18.  Right   to  enjoin   for  alleged 

refusal  to  redeem 132 

19.  Right  to  redeem 100 

20.  Splitting  a  bank  note 405 

21.  Stolen 404,  414 

22.  Reserve 87-90,  93 

23.  Reserve  on  gold  notes 93 

24.  Semi-annual  return 150 

25.  Statement  of 146 

26.  Tax 143,   148-150 

27.  Uncurrent 63,  124,  422 

CIRCULATION.      See  CIRCULA- 
TING NOTES. 

CLEARING-HOUSE 482-496 

1.  Bad  checks  returned 495 

2.  Balance  ticket 490 

3.  Certificates 88 

4.  Charging  checks  up  through. 461 

5.  Checks  for.  .  .  .289,  318,  461,  495 

6.  Check  ticket 489 

7.  Clearings  begin 490 

8.  Committees .  .487 

9.  Country  clearings 496 

10.   Credit  ticket 489 

n.   Debtor  and  creditor  banks.  .  .480 

12.  Definition 482 

13.  Desks  at  New  York  and  Bos- 

ton  488 

14.  Desks  for   488 

15.  Early  methods 483 

16.  Errors  in  exchanges.  . .  .493,  494 

17.  Exchanges. 289,  318,  411,  461  489 

18.  Exchange  slip 489 

19.  Fines 493 

20.  First 484 

21.  Gold  and  silver  certificates.  ..389 

22.  How  clearings  are  made.    ...490 

23.  How  to  organize 487 

24.  Manager 487 

25.  Modern 485 

26.  Necessity  for 318 

27.  Number  in  United  States.  .  .  .485 

28.  Orders 492 

29.  Organization  of 487 

30.  Paying  balances 49-= 

31.  Preparing  the  exchanges  .  .  .  .489 

32.  Promptness 490 

33.  Proof 490 

34.  Reclamations 

35    Settling  clerk's  statement.  .  .  .489 

36.  Settling  clerk's  receipt 489 

37.  Statistics  of 485 

38.  Time  of  clearings 490 

39.  Transfers. .    402 

40.  Utility  of 486 


INUKX   TO  THK   BCSI.NMSS  OK    l>\\u 


419 


CLERKS.  See  BANK  CLERKS.        SEC. 

CLIPPING  GOLD  COIN 375 

CLOSED-BANK    NOTKS 124 

C.  O.  D.  DRAFTS iH5.  45,S 

COIN.     See  COINAGE,  GOLD,  SIL- 
VER and  PAYING  TELLER. 

1.  Clipping 375 

2.  Light   weight 374 

3.  Minor 392,  393 

4.  Mottoes  on 383 

5.  Split 386  i 

6.  Stamping  light  weight 374 

7.  Uncurrent 378 

COINAGE 382-386 

COLLATERAL.     See  SECURITY. 

1.  Banks  liable  for  loss  of 447 

2.  Bonds,  etc 188.  446 

3.  Changing 446 

4.  Condition  of 445 

5.  Convertibility 186 

6.  Substitution 446 

COLLECTIONS 450468 

1.  Bank's  responsibility 466  '• 

2.  Checks  as  payment  for 459 

3.  Deposit  of  proceeds  of 427  ; 

4.  Facilities  for 465 

5.  Foreign  paper 451 

6.  For  strangers 464   ; 

7.  Instructions    with 460  ; 

8.  Letters 450,  45^,  467 

9.  Making  c.  direct 451 

10.  Of  checks 462 

11.  Of  notes 365 

12.  Paper  left  for 434 

13.  Payable  at  a    bank 460 

14.  Paying 361 

15.  Rates   468 

i')     Register 453 

17.  Tickler 454 

18.  "Tramp"  or  "stray" 464 

19.  What  money  can  be  taken  .  .  .  -560 
COLLECTION  CLERK 440-4"* 

1.  Division  of  vaults 286 

2.  Grace 457 

3.  His  records 450,  451 

4.  Leaving  paper  for  collection  .450 

5.  Letters 

6.  Notices 455 

7.  Taking  checks \^) 

8.  "Tramp"  collections \".\ 

\Vith  exchange.  " 456 

COMBINATION   LOCKS. ..286,  jS7 
COMPENSATION        See  SALARY 

1.  For  bank  examinations 136 

2.  Of  directors 175 

COMPROMISE 210,  261 

i.   Directors  may 163 


COMPTROLLER  OF  THE 
CURRENCY  

1.  Appointment 

2.  Certificate  of \  ; 

3.  Deputy 30 

4.  Report  of j  \ 

CONSOLIDATION    mi 

CONVERSION    OF  STATE  TO 

NATIONAL  BANK..  152,  153 
CORPORATION  DEPOSITS.  .  .314 

CORRESPONDENCE 251 

CORRESPONDING  CLERK, 

251,252 

COUNTERFEIT  397-405 

1.  Clipping 375 

2.  Paying  out ^(>o 

3.  Penalty  for  passing i  n  >- 1  _•  \ 

4.  Splitting  a  bank  note 405 

5.  Stamping   97,    403.  41  f 

6.  Stolen  bank  notes 404,  414 

7.  Sweating  and  splitting >,-<> 

8.  Test  for  gold  and  silver. 

9.  Watching   for ^  1 4 .  417 

COUNTRY  BANKING 24^ 

COUNTRY  CLEARINGS. 

See  CLEARING-HCM 

CREDIT  CLAIMS 4r5 

CREDIT  CLERK 231 

CREDIT  LOAN  TICKET ,4, 

CREDITORS. 

1.  Bill  of 131 

2.  Dividends  to i  .-s 

3.  Notice  of  liquidation    <)•) 

CRIMINALITY 117-124 

See  PENALTY 

CROSS-CHECK   SYSTEM 41.; 

CURRENT  FUNDS.   SecMoNSY. 
CUSTOMERS.      See  DEPOSITORS. 
CUSTOMER'S  CREDIT  BOOK. -MI 
DATING  AHEAD  SYSTEM.  ...313 
DAYS  OF  GRACE. 

1.  Abolition  of 457 

2.  On  certificates  of  deposit.  .  .    340 

3.  On  checks 301 

DEALERS.      See  DEPOSITORS. 
DEFINITIONS 

i     Of   bank [ 

7.  Of  carat 571 

3.  Of  check 

4.  Clearing-house 

5.  Of   deposit  ....  2<>o,    560,  4iS,  4i<) 

6.  Of  dollar 

DEPOSITS. 

1.  After  hours 

2.  Bank's  liability   for 

3.  Collection  as  a 

4.  Defined 269,  360,  418,  419 


420 


INDEX  TO  THE  BUSINESS  OF  BANKING. 


DEPOSITS— Continued.  SEC. 

5.  Forced   425 

6.  Fraudulent 423 

7.  General 269 

8.  General  deposit  as  a  loan.  . .  .418 

9.  How  evidenced 418 

10.  Indorsement  for 345 

11.  Interest  on 426 

12.  Loss  of  special 420 

13.  Mutuum 418 

14.  Of  a  bankrupt. 366 

15.  Of  a  corporation 314 

16.  Of  a  partenship 313 

17.  Of  bank  notes 360 

18.  Of  out-of-town  customers. .  ..408 

19.  Paying  notes  out  of 368,  460 

20.  Proceeds  of  collection  as  ...  .427 

21.  Receipting  for 408 

22.  Receiving 417 

23.  Special 269,  419 

24.  Statute  of  limitations.  . .  .363-364 

25.  Taken  to  pay  check 460 

26.  Taken  to  pay  note 368,  460 

27.  Unclaimed 364 

28.  Uncurrent  notes  as 422 

DEPOSIT  TICKET... 290,  407,  407^ 

i.   Duplicate 408 

DEPOSITORS. 

1.  At  a  distance 408 

2.  Credit  claims 415 

3.  Credited  for  collections 462 

4.  Insolvent 366 

5.  List  of 273 

6.  List  of  for  taxation 276 

7.  Loans  to 240,  240^ 

8.  Looking  for  forgeries   340 

9.  Must  examine  pass  books. . .  .339 
10.   Payment  of  depositor's  note. 

368,  460 

DEPOSITOR'S  ACCOUNTS. 

1.  Accuracy  in  keeping 416 

2.  Closing   .  ..  425 

3.  Errors 478 

4.  Overdrawing  .  .246,  304,  313,  421 

5.  Pass  books 408-410 

6.  Pass  books  as  evidence 479 

7.  Set-off  against ... 366 

DETECTION    OF    COUNTER- 
FEIT  397-405 

See  COUNTERFEIT. 

DILIGENCE. 

i.   Required  of  directors, 

172,  269,  272,  420 

DIRECTORS 49-64,  I54-J97 

1.  See  PRESIDENT  and  CASHIER. 

2.  Approval  of 439 


DIRECTORS— Cimlinited.  SEC. 

3.  Approval  oi  surities  of  official 

bonds    221 

4.  As  a  board 157,  158 

5.  Assigning  securities 162 

C.    As  trustees :6i 

7     Authority  of  president. .  .  199   213 

8.  Bad  judgment,  not  liable  for.  .  193 

9.  Borrowing  of  their  bank ]6i 

10.  Borrowing  for  their  bank.  .  .  .162 

11.  Cannot    compensate    them- 

selves   175 

12.  Compensation 175 

13.  Compromise 163 

14.  Contracts  with  their  bank  .  .  .  161 

15.  Dealing  in  bonds 

16.  Declaring  dividends, 

-.54-  55-  102,  194 

17.  De  facto  and  de  jure 1^5 

18.  Defrauding  depositors 168 

19.  Detecting  frauds 181 

20.  Diligence  required, 
172,  269,  272,  420 

21.  Discounting.  174, 182-189,205,438 

22.  Distribution  of  loans 161 

23.  Dividend,  may  omit  to  de- 

clare     194 

24.  Duty  begins 180 

25.  Duty  of 438 

26.  Election  of 49~53.  *54 

27.  Examining  books,  failure  to. .  169 

See  1 80. 

28.  Exceeding  their  authority .  . .  .  168 

29.  Errors  of  judgment 172 

30.  Frauds,  detecting    181 

31.  Frauds,    knowledge  of 170 

32.  Inattention 168,  270,  271 

33.  Improper  distribution  of  loans  161 

34.  Imputation  of  knowledge. .  .  .  165 

35.  Indorsers,  failure  to  give  no- 

tice to 168 

36.  Inspecting  the  books.  ..  .169,  180 

37.  Knowledge,  imputation  of ...  165 

38.  Liability,  personal 166,  171 

39.  Liquidation,  notice  of 99 

40.  Meetings 159,  173,  439 

41.  Misconduct 167.  168,  271 

42.  Must  accept  or  refuse 158 

43.  Negligence 169,  280 

44.  No  separate  power 157 

45.  Notice  to  one  director  not  no- 

tice to  bank 157 

46.  Notice  of  special  meeting.  ...  150 

47.  Notice  of  meeting 159 

48.  Not  infallible 171 

49.  Number  of 156 

50.  Oath 51,   156 


INDEX  TO  THE  BUSINESS  OK  BANKING. 


421 


DIRECTORS  —  Continued. 
5  1     Perjury 


(>o. 


03. 


437- 


Powers  to  discount, 
............    i 

53.    Powers  limited  ........  157, 

Mialilication  ............  50, 

s>    <  hioruin 

50.   Ratification  of  president  s 

acts  .................  2ii, 

.-•fusing  a  loan 
.  cmoving  suspicious  clerks. 
;--\  ision  of  the  loans 
Routine  of  business 
Jeal,  may  aft   without 
hould  respect  the  cashier.  . 
Signatures  ................ 

See  SIGNATIKKS. 
f>  j.    Special  meetings  ............ 

.ipervisiou  ............  180, 

icancy  on  the  board.  .  .  .53, 

Vrongs  of 

f  1JOOK 
'TXT  CLERK 

1.  Division  of  vaults 

j.    Numbering  and  timing.  .440, 

3.  Responsibility 

4.  The  tickets 
DISCOUNTS, 

----  172,  174,  18.2   [j 

T.    See  LOANS 

2.  Re-discounts 
DISHONORKD  PAPER. 

DISSOLUTION    AND    RE- 

CEIVERSHIP ........  1^5 

r.   Duties  of  receiver 

2.  When  receiver  may  !><•  ap- 

pointed 
DIVIDENDS,    DECLARING, 

..............  54-  55-  !'• 

i.    May  omit  to  declare  ....... 

_'.    Regarding  dividends  ....  192 

3.  Report  of 

4.  To  creditors 

DOCUMENTARY  BILLS..  185, 
DOLLAR 

i  .  Coinage  of  silver 
lottoes  on  silver 
5ign  of 

4.  Trade    ................  380, 

5.  What  is  a  dollar 
DRAFTS       See  P.TSIXKSS  PAIM-R. 
ELECTION  OF    AGENT 
EMP.E//LEMENT  ........  117, 

E  PLURIBUS  UNUM 
ERRORS.     See  MISTAKES. 


157 


158 

155 
luo 

213 

174 
181 
180 
174 
164 
229 
130, 

159 
181 
155 
167 
442 

448 
286 
441 
447 
444 

148 


-134 


131 

194 

140 
128 
458 

382 
383 

385 
383 
291 

120 
272 

383 


ETERNAL  VIGILANCE,  SEC. 

238,245,246,304,338.415,416,478 

EVIDENCE 113-116 

:      1  'ass  book   as 266 

MINATIONS. 

See  li\\k  EXAMINATIONS. 
EXAMINING 

1.  The  deposits 413,  414 

2.  The  books 169,  180 

EXCESSIVE  TAXES. 

i.    Refund   ol 151,279 

EXCHANGES  FROM  CLEAR- 
ING-HOUSE, 

289,  318,  411,  461,  4<Vt 

i.   See  CLEARING-HOUSE. 
EXEMPTION  FROM   TAXA- 
TION  i.n 

EXPENSES 14,  80,  81 

i     For  reports 139 

EXPRESS  COMPANIES...  394,  395 

1 .  As  collectors 

2.  Rates  of 379,  395 

3.  Transporting  gold  and  silver.  379 
FORGED  AND  FORGERY. 

1.  Checks.  .  .  .306,  329-334,  336  340 

2.  Circulating  notes 123 

3.  Certification 327 

4.  Fraudulent   collections 460 

5.  In  Clearing-house  checks. . .  .318 
C.    In  country  banks 242 

7.  Indorsement 316,  341,  464 

8.  Looking  for 340 

9.  The  terrors  of  banking 306 

FOREIGN  PAPER 451 

FRANCHISE,  FORFEITURE 

OF 130 

FRAUD. 

i     Hy  cashier    271 

2.  Detecting 181 

3.  Directors  must  have  knowl- 

edge of 170 

4.  In  acceptance   joS,  237 

5.  In  deposits 42} 

FRUGALITY 236 

FUNCTIONS  OF  A  BANK    183    184 
GAINS.      See  PROFITS. 

GOLD 369-381 

1.  See, COIN  and  PAVING  TELLER. 

2.  Abrasion  of 31  • 

3-    Alloy 371 

I     As  a  metal 369 

\t  Delphi 369 

'•'icging 377 

7.  Bullion 371) 

8.  Carat 371 

'»    <^re  of 377 


INDEX  TO  TIIK   BUSINESS  OF  BANKING. 


GOLD—  Continued.  SEC. 

10.  Certificates.  . 94,  373,  389 

11.  Clipping 375 

12.  Facts  pertaining  to 369 

13  In  a  bulk 370 

14  In  packages 373 

15.  In  the  world 369 

1 6.  Price  of 372 

1 7.  Pure 371 

i«.    Relative  value  of  silver  and.  .372 
IQ.    Shipping 377-379 

20.  Specie 373 

21.  Split  coin 386 

22.  Sweating 376 

23.  Test  for 381 

24.  Tying  a  bag   of 377 

GOLD  CERTIFICATES,  94,  373,  389 

GOLD-NOTE  BANKS 92,  93 

GOOD    WHEN    PROPERLY 

INDORSED.      See    IN- 
DORSEMENTS and  CHECKS. 

GRACE.      See  DAYS  OF  GRACC. 

GREENBACKS 387 

HIGHEST  FUNCTION  OF  A 

BANK 183, 

HOLDER  OF  CHECKS.  See 
CLERKS  and  PAYING  TELL- 
ERS. 

IDENTIFICATION, 

253,  315,  319, 

1.  Indorsement  for 

2.  Of  a  drummer 

IDENTIFIERS 

IMITATION  OF.BANK  NOTES. 
INDEBTEDNESS,  LIMIT  OF.  . 
INDIVIDUAL   LIABILITY 

OF  SHAREHOLDERS... 
INDORSEMENT. 


i.s4 


344 
344 
317 


1.  As  a  receipt 

2.  For  collection 259, 

3.  For  deposit 

4.  Forged 316.  318 

5.  For  identification 

6.  Irregular 

7.  Of  bank's  paper 

8.  Of  checks  deposited 

o.  Unprotected 

INDORSEES. 

1  How  they  affect  a  loan 

2  Notice  to 168.  357- 

i  Of  checks 

INSPECTION   . 


INSOLVENT  BANK, 
i.    Payment  of  check  by 


352- 


2.    Set-off. 

3     Uncollected  checks  held  by. 


61    I 
134 

319 
452 
345 

344    j 
324 
258   I 

235 

235 

359 
358 
274 

357 
366 

353 


25- 
395 


450 
116 


305 
237 

387 

467 

251 
428 
252 
252 


INTEREST.  SEC 

1.  On   bonds  .................      76 

2.  On  certificates  of  deposit.  .  .  .34(1 

3.  On  deposits   ...............  426 

4.  On  loans  ...................  24(1 

5.  On  loans  to  officers  .........  161 

6.  Paying  ...................  209 

7.  .Rate  of  ..................  in 

8.  Taken  in  advance  ...........  438 

9.  Usury  and  penalty  ..........  112 

INTRODUCTIONS  TO 

CASHIER  ............... 

ISSUE    OF    CURRENCY, 

..............  78-110,  39* 

JOURNAL       OF       BANKING, 
RHODES'  .......... 

JURISDICTION  ............  113 

KITING 

i  .    In  checks  .................. 

2.   In  drafts 

LEGAL  TENDER..  82,  94,  360, 
LETTERS. 

1.  Collection  letters.  .  .450,  452, 

2.  Of  the  bank  ................ 

3.  Of    note  teller  ............. 

4.  Special  ................  251, 

LETTER  BOOK  ...........  251 

LIABILITY. 

1.  Of  bank.      See  BANK'S  LIA- 

BILITY. 

2.  Of  directors   .......  ....166-171 

3.  Of   shareholders  ............  134 

LIEN. 

1.  Banker's  ..................  365 

2.  On  stock  ..................  367 

3.  Set-off  ....................  366 

LIMITATIONS. 

1.  Of  cashier's  power  ..........  267 

See  CASHIER. 

2.  On  loans  ...............  58,  189 

LIQUIDATION,     VOLUN- 

TARY    ...........  48,  98,  133 

LITERATURE   OF  BANKS....  450 

LITIGATION.      See  PRESIDENT. 
LOANS 

1.  See  CASHIER  and  DIRECTORS. 

2.  Collaterals.      See  COLLATER- 

ALS and  SECURITY. 
Limitation  on  ...........  58.  189 

Low  rates  on  ...............  239 

Excess  of  ..................  239 

On    bills  ...................  185 

On  personal  security, 

............  187,  188,  234,  445 

8.  Prohibited  ..................   59 

9.  Prompt  ....................  180 

10.   Prospective  ................  244 


INDEX  TO  THE  BUSINESS  OH  HANKING. 


LOANS  —  ( '«'//////««•</. 

n.   Quality  of 

i  2.    Oucstionable 187 

13.  Refusing 174 

14.  Regulating  maturity  of 438 

15.  Risk  on 234,  235 

10.    Scai  city  <>1 239 

17.    Security 188,  252 

See  COLLATERAL  and  SECU- 
RITY. 

io    Short  time 445 

i<)-   Speculative i«6 

20.  To  dealers 240 

21.  To  depositors    240,  240^ 

22.  To  directors it>i 

23.  To  relatives  and  friends iSo 

LOAN  CLE  R  K 286 

LOCKS.     See  COMBINATION  LOCKS. 
LOSSES. 

1.  By  depreciation 361 

2.  Cannot  be  avoided 2  }S 

3.  Of  collateral 447 

LOST  OR  STOLEN  PAPER. 

1.  See  BUSINESS  PAPER. 

2.  Certificate  of  deposit 351 

11  M"  ON  SILVER  DOLLARS. 384 
MANAGER 179,   223-249 

i     See  CASHIER  and  PRESIDENT. 

2.  Of    Clearing-house.       See 

CLEARING-HOUSE. 

3.  Responsibility  of 438 

MESSENGER 4&9-473 

1.  Clearing-house    490 

2.  Duties  of 470 

3.  Paying  checks 304 

4.  Presentation  of  paper 471 

5.  Route  of 473 

6.  Small  drafts 472 

MARKETS,  WATCHING  THE. 230 

MACERATION 85.  86,  103.  no 

METHODS   OF  CHECK  RA1S- 

'  ERS       See  CHECKS. 

MINOR  COIN 392 

MISCONDUCT   OE   DIREC- 
TORS  167,  168,  271 

MISTAKES. 

1 .  Corrected    266 

2.  In  cancelling  checks 270,321 

3.  In  depositor's  accounts 478 

4.  In  exchanges 494 

5.  ( )f    bookkeeper 479 

>f    note  teller 430 

'f  receiving  teller 416 

K.    Payment  by 331 

MISUNDERSTANDINGS 439 

MODERN    B  AN  KING,    ORIGIN 


MONEY 

i .    Bank  notes  as 

See  CIRCULATING  NOTES. 

2  ' '  Current  fu  as" 362 

3  Legal    tender 360 

4.    Mutilated  notes 85,  S.. 

5     1'aper 94,  95,  386-405 

6.  Paying  collections 361 

See  CHECKS 

7.  Payment  of  checks 360 

<s.    Representatives 290-292 

9.   United  States 387 

10.  Worn  and  fragmentary  .390,  396 

i  i     Worthless   notes   360 

MONEYED  CAPITAL 275 

MUTILATED  NOTES.  .  .85,  86,  103 

MUTUUM    418 

"  NATIONAL, "    USE    <>!•    THE 

WORD 64 

NATIONAL  BANKS.      See  CASHIER, 
DIRECTORS  and  PRESIDENT. 

1.  Cannot  deal  in  stocks 195 

2.  1C  (feet  of  state  laws 191 

3.  May  borrow  money H«J 

4.  Not  goverment   institutions. .  190 

5.  Reports 139 

6.  The  perfection  of  the 

s\stem  of 16,  274.  417 

7.  Visitorial  powers 138 

NATIONAL  BANK  ACT 26-153 

NATIONAL  BANK  NOTES. 

See  CIK<  ULATING  NOTES. 
NATIONAL  BANKING 

SYSTEM 16,   274 

r.   Perfection  of 417 

N  EATNESS  A  N  D  O  K  I  >ER 281 

NEGLIGENCE.      St-.-  DILIGENCE. 

N  E\V    C I  :ST<  )MERS 253 

NEW  ENTERP1RSES 236 

NOTE  TELLER 427-436 

i.   See  NOTES. 

2    Division  of  vaults 286 

3.  Errors   in  his  cash 430 

4.  How  to  keep  notes 436 

5.  Letters 

6.  Stamping   "paid" 431 

NOTES.     SeeN.-JK  TELLER. 

1 .  As   checks \< "» 

2.  Certificates  of   deposit  as.  . 

3.  Charging  up  through 

Clearing-house    461 

4.  Collection  and  discount  ..). 

5.  Collection   of 

NOTK  TELLER  and 

COLI  l.KKK. 

6.  Examining  betore  protect. 

7.  How  to  keep  notes 


424 


INDEX  TO  THE  BUSINESS  OF  BANKING. 


NOTES—  Continued.  SEC. 
8.  Must  surrender  when  paid. .  .368 
g.  Not  same  as  checks 461 

10.  Numbering  and  timing.  .440,  441 

11.  Payable  at  a  bank.  .429,  460,  461 

12.  Payable  to  a  bank 440 

13.  Payment  of  depositors' 368 

14.  Set-off  against  depositor's 

account '.  .  .366 

15.  Stamping   "paid" 431 

NOTICE 99,    108,  127,  359,  455 

1.  Failure  to  give 270 

2.  Of  directors'  meeting 159 

3.  Of  notes  due 270,  429 

4.  Of  unclaimed   deposits 364 

5.  Wrong  delivery  of 430 

OATH. 

1.  In  making  reports 139,  140 

2.  Of  Comptroller  of  the  Cur- 

rency     30 

3.  Of  directors 156 

OBJECT  OF  BANKING 232 

OFFERING    BOOK 439 

OFFICIAL  BONDS.     See  BONDS 
ORGANIZATION    OF  NA- 
TIONAL BANKS 35-48 

i.  Certificate  of    36 

OUT-OF-TOWN  CUSTOMERS,  408 

OVER  AND  SHORT 416 

OVER-CERTIFICATION 322 

OVER-DRAFTS.  181,246,304,313,421 
PARTNERSHIP  DEPOSITS... .313  i 
PASS   BOOK 408-410 

1 .  As  evidence   266 

2.  Balancing  up 409 

3.  Depositing  without 408 

4.  Examining 339 

5.  Evidence  of  correctness  of 

account  479 

6.  Mistakes  in 266 

7.  Notification  of  errors 409 

8.  Not  negotiable 410 

9.  Purpose  of 339 

PAYING  TELLER 280-405 

1.  See  COIN,  MONEY  and  GOLD. 

2.  Advicet  o  bank  clerks.  ..  .280-282 

3.  Amount  written  on 

checks 295,  296 

4.  Banker's  lien 365 

5.  Bond    284 

6.  Branding  worthless  notes. 97,  403 

7.  Cancelling  checks 320 

8.  Cancelling  checks  by  mistake.  321 

9.  Care  of  gold 377 

10.  Cash, 

1 .  Arrangements  of 288 

2.  Keeping  the '^86 


PAYING  TELLER—  Continue:!.   SEC 

11.  Certificate  of  deposit.  ..  .',46  350 

12.  Certification 322  j^S 

13.  Checks. 

1.  Dishonor  of 309 

2.  Duty  to  pay 309 

3.  Examining  .  .304-308,  328,  413 

4.  Have  no  grace 30 1 

5.  Indorsement.   See  INDORSE- 

MENT. 

6.  Kiting    in 305 

7.  Must  be  dated 298 

8.  Part  payment  of 31 1 

9.  Payable  in  "current  funds". 362 

10.  Payable  on  demand 299 

11.  Payable  to  bearer, 

300,  308,  315,  342,  345 

12.  Payable  to    order 308,  315 

13.  Payable  to   some  one 300 

14.  Payment  delayed 310 

15.  Payment  estopped. .  .  .302,  309 

16.  Payment  of 303-368 

17.  Payment  of  forged. .  .  .336-341 

18.  Post-dated 301,  312,  413 

19.  Presentation  for  payment, 

301,  343-  354-359.  4<>2 

20.  Raised 315,  329-3346' 

21.  Receipt  for  payment  of .  . .  .319. 

22.  Signature  on 294,  306 

23.  Uncollected    353 

24.  What  money  shall  he  pay  ?.  360 

14.  Clearing-house  exchanges, 

289,  318,  411,  461,  489 

i.   Checks 318 

15.  Coin,  mottoes  on 383 

1.  Light  weight 374 

2.  "M"  on  silver  dollar 384 

3.  Redemption    of 393 

4.  Split 386 

16.  Counterfeit,  detection  of. 397-405 

1.  Check  letters 398 

2.  Clipping 375 

3.  Splitting 376 

4.  Stolen  bank  notes  .  .  .  .404,  414 
5    Sweating 376 

17.  "  Current  funds" 362 

18.  Depositor's  note,  payment  of. 368 

19.  Frugality 236 

20.  Gold 369  379,  381 

1.  Abrasion 369,  376 

2.  Certificates 94,  373,  389 

3.  Clipping 375 

4.  Light  weight  coin 374 

5.  Shipments 377-379 

6.  Specie 373 

7.  Splitting  and  sweating 376 

8.  Test  for 381 


INDKX  TO  Tin-:   I  >  i    \\KIM.. 


PAYING   TKI.LKK    -Continutd.    SBC. 

21.  Identification.  .253.  315,  319.  344 

1.  Identifying  a  drummer.  .  .  .317 

2.  Identifiers  ................  316 

3.  Indorsements  ............  344 

4.  Record  of  identifiers  ......  316 

22.  Lien  on  stock  ..............  367 

23.  Money,  business  paper  as  .  290-292 
i.   Counterfeit  ...............  360 

See  COUNTERFEIT. 
2    "Current  funds"  .........  362 

3.  Dollar  sign  ...............  385 

4.  In  what  money  shall  he 

pay?  ...................  360 

5     Legal  tender  .............  360 

6.  National  bank  bills  ........  388 

7.  Paying  out  clean  money.  .  .390 

8.  Redemption  of  ........  391-396 

9    Silvrr  and  gold  certifi- 

cates ...........  94.  373,   }8<( 

10.  Specie  ...................  373 

11.  United  States  .............  387 

12  Worn  and  fragmentary.  390,  396 

13  Worthless  notes  ..........  360 

24.  Neatness  and  order  .........  281 

25.  Over-drafts.  .  .  .246,  304,  313.  .\2i 

26.  Payment,  by  insolvent 

bank  ..............  352,  357 

1.  Of  depositor's  notes  ......  368 

2.  Set-off  ...................  366 

27.  Position,  general  view  of  . 

28.  Salary  .  .  .  ..................  285 

29.  Set-off    ....................  366 

30.  Signature  slips  .....  '.  .  .  .253,  307 

31.  Silver,  shipments    ..........  380 

i.  Certificates  .......  94,  373,  389 

i.   Coinage  ..............  ^2-386 

3.  "  M  "  on  silver  dollar  ......  384 

4.  Mottoes  on  coins  ..........  383 

5-   Specie  ...................  373 

6.  Test  for  ..................  381 

32.  Statute  of  limitations, 

......  328,  339.  346,  363.    <<>4 

jS     Vaults,  division  of  ..........  286 


PAY-LOAN   TICKET 


444 


PAYMEN 

1.  Application  of  ..............  265 

2.  By  insolvent  bank  ......  352-357 

3.  By  mistake  .................  331 

4.  Certification  equivalent  to.  .  ..328 

5.  Crediting  equivalent  to  ......  421 

6.  Enforcing  ..................  247 

7.  Estopped  ..............  302,  309 

8.  Of  checks  ..............  303-368 

See  CHECKS. 


PAYMENT—  C,>minufd. 

9.  Of  Clearing-house  balance 

10.  Of  collections  ........... 

11.  Of  depositor's  notes  . 

12.  Of  forged  certification  ..... 

13.  Of  penalties.      SeePEN.\; 

14.  Of  protest  fees  ..............  IQJ 

15.  Of  stock  ............ 

PENALTY 

1.  Circulating  uncurrent  note  • 

2.  Counterfeiting  bank   notes...  122 

3.  Dealing  in  forged  notes  .....  i  _•  5 

4.  Failure  to  make  returns  on 

circulations    ..........  140   147 

5.  Failure  to  make  reports  .....  141 

6.  Failure  to  take  up   bonds.  ...  ID  } 

7.  False  oath  by  directors  .....   157 

8.  Imitation  of  bank  notes  .....    S4 

9.  Mutilation  of  bank  no 

10  Over-certification  ........  r 

11.  Passing  counterfeits  ........    uo 

12.  Taking  impressions  .........  12: 

13.  Taking  bank   notes  as  secu- 

rity ................... 

14.  Use  of  plates  and  bank-note 

paper   ................... 

15.  Using  the  word    "National" 

16.  Unlawful    delivery  ....... 

17.  Usury 

18.  Violation  of    National   Bank 

Act  ...................... 


i  n> 

04 


PLACE  OF  BUSINESS,  44,  i 
PLEADING  ...............  .13-116 

PORTER  .......................  ,74 

POST-DATING   .......  301,  312,  ->  13 

POWERS    01      NATIONAL 
BANKS    .............. 

i.    See  CASHIER,  PRESIDENT  and 
DIRECTORS. 

z.    Indebtedness  ............. 

3.  To  hold  real   estate  .........    57 

4.  To  sue  ....................  ii  \ 

PRESENTATION     See  Brsr. 

PAPER,       I'AYINC,      TEL: 

CHECKS,  etc. 
i.    Holders'  excuse  for  delay.  .  .  .357 

>f  checks..  .  .......  343.  354-358 

\.    Reasonable  time  .......... 

4.   When  checks  should  he  pre- 

sented ........ 

PRESIDENT  ...............  ! 

i.    See  DIRECTORS 


4  26 


INDEX  TO  THE  BTSINESS  OK  HANKING. 


PRESIDENT  —  Continue.!.  SEC. 

2.  Authority 199  j 

1 .  By  usage 200  ! 

2.  By  usage  and  ratification.  .213 

3.  Less  than  directors' 211    ; 

4.  Limitation  of 206-2 1 1 

5.  To  compromise   210  i 

6.  To  conduct  the  litigations  .201 

7.  To  discount 205 

8.  To  pay  bank's  debts 204 

9.  To  purchase 203 

10.   To  secure   debt 215  ' 

u.   To  transfer  real  estate 20 ->   i 

3.  Bond 214 

4.  Cannot  certify  his  own  check.  208 

5.  Duty  to  sign 216 

6.  Imputation  of  knowledge.  .  .  .212 

7.  May  borrow  of  his  bank 161 

8.  Salary 217 

9    The  position 198 

PRIVATE  BANKS 21-23 

PROFITS. 

1 .  Dishonest 241 

2.  From  compromise 163 

3.  Governing  the.  .  .    239 

4.  Of  banking 14,  240,  240^ 

PRO    TANTO 356,  365 

PROTEST. 

1.  Abolition  of   . 433 

2.  Examining  notes  before 435 

3    Object  of 432 

4.   Of   banknotes 105-109,  125 

5    Of  notes  and   drafts 432 

6.    Payment  of  fees 105 

7     Rule  of 434 

8.  When  necessary 432 

9.  When  not  necessary 432 

10    Without  authority 471,  472 

PROXY.      Voting  by 49 

QUORUM  OF  DIRECTORS.  .  .  .  160 

RAISED  CHECKS 329-334" 

RATES  OF  COLLECTION    .  .    .468 
REAL  ESTATE. 

1 .  As  security 57,  196 

2.  Stock  of  r.  e.  corporation.  .  .  196^ 

3.  Selling i96;' 

4.  Transfers 202 

RECEIVER.  ,41,  59,  87,   89,  126,  131 
RECEIVERSHIP.     See  DISSOLU- 
TION. 

RECEIVING  TELLER 406-426 

1.  Division  of  vaults 286 

2.  Receipts  for  deposits 408 

3.  Requiring  certification 412 

4.  Taking  deposits 417 


RECEIVING  TELLER—  SEC. 

Continued. 

5.  Writing  up  pass  books 409 

RED-DOG  BANKS 18 

REDEMPTION  FUND 91 

REDEMPTION   OF  THE  CUR- 
RENCY      78-110,  388-396 

RE-DISCOUNTS 263,448 

REPORTS 135-141,  274 

RESERVE 87-90,   93 

RESOURCES 

i.    Regulating  future 243 

RESPONSIBILITY.      See  BANK'S 

LIABILITY,  CASHIER,  etc. 
RISK. 

1.  On  loans 234,  235 

See  LOANS. 

2.  On  new  ventures 230 

3.  On  special  deposits 421? 

ROBBERIES.  .245,  269,  272,  379   423 
ROOMS.     See  CASHIER. 

RUBBER  STAMPS 345.  46-7 

SALARY 181,  217,  228,  285 

SAVINGS  BANKS. 

1.  Loans  to 44; 

2.  Report  of 139,  14: 

SEAL 

SECURITY.      See  COLLATERAL. 

r.   Bank  notes  as 

2.  Care  of 273,  445 

3.  Collateral 445 

4.  Coupon  bonds  as 188.  44^ 

5     Directors  may  assign 162 

6.  On  loans 1 18,  234,  240,  252 

7.  Personal 187,  188,  234,  445 

8.  Stock  of  real  estate  corpora- 

tion as 196? 

9.  Time  paper  as 446 

10    United  States   1 18 

SET  OFF 

SETTLING  CLERK 490 

SETTLING   CLERK  S   STATE 
MENT.        See     CLEARING 

HOUSE. 

SHARES. 

1.  Lien  on 367 

2.  Of  national  banks 39 

3.  Payment  of 40 

4.  Taxing 142,   275  279 

5.  Transferring 364 

6.  Where  assessable    278 

SHAREHOLDERS. 

1.  Choosing  directors 154 

2.  Consent  to  extension 45  46 

3.  Delinquent 41 

4.  Individual  liability  of 134 


INDEX   r<>  TIIK  BTSINKSS  OK  BANKINC;. 


427 


SHAREHOLDERS    -(\>ntin-ieJ.  SEC. 

5.  Meeting  of 129 

6.  Taxes 142,  275  279 

7.  Voting 49 

SHIPPING  GOLD.      See  GOLD. 
SHIPPING  SILVER.  See  SILVER. 

SHORT   METHODS 465.475 

SIGNATURE 79,    216,  250,  404 

1.  Checks,    without 413 

2.  Checks  must  have 294 

3.  Mark  for 31* 

4.  Private  marks 306 

SIGNATURE   SLIPS 253,  30? 

SILVER 380  384 

1.  See  COIN,  PAYING;  TELLER,  etc 

2.  Certificate 94,  373,  389 

3.  Coinage 382-386 

4.  Price  of 372 

5    Relative  value  of  gold  and.  .  .372 

6.  Shipments 380 

7.  Specie 373 

8.  Test  for 381 

SMALL  ACCOUNTS 304 

SPLIT  COINS 386 

SPLITTING    376 

SPLITTING  A  BANK  NOTE      .405 
SPECIE.    See  SILVER  and  GOLD. 

STATE   BANKS 17-20,152,  153 

STATEMENT. 

1 .  Of  bank's  condition 476 

2.  Of  settling  clerk    489 

STATUTE  OF  LIMITATIONS, 

328,  339.   346,  363,  364 

STEALING.     See  ROBBERIES. 
STOCK.   See  SHARKS. 
STOCKHOLDERS.      See  SHARE- 
HOLDERS. 

SUSPENSE   ACCOUNT 416 

SUSPENSION  OF  PAYMENT, 

9.  232,  364 

SWEATING 376 

TAXATION 

1 .  Assessing 275 

2.  Banks  required  to  pay  share- 

holders' tax 277 

3.  Exemption  on  circulation. .  .  .  149 

4.  Higher  valuation 276 

5.  List  of  depositors  for 276 

6.  Of  banks  generally 142-151 


TAXATION—  Continued. 

7.  Of  shares 142,    275-271) 

8.  On  bank  notes 144 

9.  On  circulation 140 

10.   Paying 

n.   Shareholder,  not  bank,  assess- 
able  

12.   Where  shares  assessed  .  .  . 
THEFT  OF  CLERKS, 

245,  269.  272,  420 

TICKETS 

1 .  Balance 490 

2.  Check 

3.  Credit 4S  > 

4.  Credit-loan 444 

5.  Deposit 407,  407^ 

6.  Exchange  slip 

7.  Notice 455 

8.  Pay-loan 444 

9.  Transfer   orders 

TICKLERS 

TREASURY  CERTIFICATES 
UTILITY  OF  BANKS.  . 
UNCURRENT  COIN     S- 
UNCUKKKXT  NOT: 
UNITED  STATICS   No'l  ' 
UNITED  STATES  TAX.  ON 

CIRCULATION 149 

UNKNOWN    PKKS1 

r.    Giving  checks  to 

VACANCY    ON    THE   BOAK1- 
OF    DIRECTORS  .... 

VALUE  OF  GOLD  AND  SIL- 
VER  

VAULTS.       See  CAMUKK.    I 

TELLER,  etc. 
VIGILANCE.       See      ETERNAL 

VlGII.AN 

VIOLATION   OF    HANK    ACT 

i.    Effect  of i  }o 

VISITATION 

VOLUNTARY    LlyUlRVn 



VOTING.      By  proxy  .  . . 

WARRANTY 341 

WILD-CAT  BANKS i . 

WORN  MONEY 390 

WRONGS  OF  DIRECTORS. . .  .  167 


INDEX  TO  GOMNERGIIL  CREDITS. 


ABILITY  .....................  513 

1.  To  judge  of  values  ..........  513 

2.  To  know  when  to  sell  .......  500 

3.  To  sell  to  those  who  will  pay.  500 
ABILITY  ......................  513 

1.  Defined, 

2.  Culivating  the  trait. 

3.  Jack-of  -all-trades  —  specialists. 

4.  Judging  human  nature. 

5.  Some  suggestions. 

6.  Speculative  ventures. 
ACCOUNTS    AND    BILLS    RE- 

CEIVABLE. 
i  .   As  assets  ...................  526 

2.  Invoicing  ..................  551 

3.  Over-due  —  interest  on  ......  526 

ADVERTISEMENT. 

See  ADVERTISING. 
ADVERTISERS. 

See  ADVERTISING. 
ADVERTISING  AND  ADVER- 

TISEMENTS ........  553-565 

1.  Advertising  specialties. 

...............  558-7th,  i2th 

2.  Agencies  ...................  561 

3.  Aim  of  .............  556,  565-33 

4.  An  adv    that  offers  nothing. 


5.  Beginning  to  adv  ...........  561 

6.  Borders  around  ............  557 

7.  Changing  copy. 

556-7th,  557,  558-1  ith,  565-61*1 

8.  Circulars,  bills,  posters,  dodg- 

ers and  programmes  ....... 

558-5th,  8th,  gth,  nth,i5th,2oth 

9.  Claiming  too  much  .........  554 

jo.  Country  papers.  .  .    555,  558-201!! 
ii.  Crowding  much  in  little 

space  ............  557,  565-8th 

22.  Dancing  figures  ............  560 


ADVERTISING,  ETC.  —  Confd.     SEC. 

13.  Definition  of 553,  558-151 

14.  Display  adv 563    565-1  ith 

15.  Display  of  goods 560 

16.  Dodgers 558  5th 

17.  Drawing   the  reader's  atten 

tion 557 

18.  Dull  statements 557 

19.  Dull  trade 565   i 2th 

20.  Effect  of  adv 565-  3d 

21.  -Funny  stories 565 -4th 

22.  General  view 553 

23.  Glaring  head-lines 558-4!!! 

24.  Idle  talk  in  adv  .  .  .  .558-41!!,   562 

25.  Illustrations  .  .558-81!!,  loth,  559 

26.  Individuality    557 

27.  Initial  scheme 555 

28.  It  pays  to  adv 558 

29.  Judicious  advertising 553 

30.  Language  of  adv 562 

31.  Large  and  small  adv.558-4th,5th 

32.  Leaving  the  reader's  first  nat- 

ural inquiry  unanswered  .  .  .556 

33.  Lying  in  adv 554,  558-33 

34.  Magazines,  adv.  in 558-201)1 

55.  Marking  copy 563 

56.  Marionettes,   or    dancing    fig- 

ures    560 

37.  Measuring    564 

38.  Mentioning     competitor's 

goods 565-15! 

39.  Methods  of 561 ,  562 

40.  Misrepresentation 558  4th 

41     Mistakes  in  small  adv    557 

42.  Newspaper 

565-5!!!,  558-2d,  5th,  6th,   nth, 
i3th,  i5th,  i6th,   iSth 

43.  Object  of 556 

44.  Opinions  regarding  adv 558 

45.  Originality    558-8th 

46.  Placards 560 


1  M  )  I .  \ 


IL  CREDITS 


ADVERTISING  RTC      ComfJ. 

47     Placing  adv 5(11 

1.  Selecting  the  medium. 

2.  Pro  and  con  of  agencies. 

3.  Method  and  practice. 

.}S     Plan  of 505   2d 

4-)     Poor  methods 561 

50     Posters    558 

51.    Preliminary  adv 555 

Teparmg  copy  .  .  .    .55*  ;<1,  503 
s  }     Primary  object  of 556 

54.  Prizes 55*    i  ith 

55.  Programme 558 

: 'uzzles    555  8th 

57.    Random    553 

58     Real  estate 558  7th 

59.    Running  down  your  competi- 
tor     554 

(>o.    Satirical    559 

o!     Secret  of  advertising.  ..  .558  stli 

;ensational 558  4th 

63.   Show  window  adv.  .  558   igth,  560 

"-4     Signs 558 -5th,  550 

Mnall  adv 558  4th,  5th 

specialties    558 

07.    Spiral  line — difficult  to  read  .555 
Spoiling  goods  in  show   win- 
dows     560 

69.  Stereotyped  adv 557 

70.  Stewart's  methods 562 

71.  Suggesting     a    want     in     the 

reader's  mind 557 

-uggestions  to  advertisers  .  .  .565 
i.  Show   your  own  goods     let 
vour  competitor  alone 
.ve  a  plan. 
3    Get  some  effect. 

4.  Tricking  the  reader. 

5    Wrapping  paper  adv. 

(>.  <  'hanging  copy. 

7     Points. 

8.  Much  matter  in  little  spao- 

-pace  reserved. 
10.  Keeping  at  it. 
i  i.  Angle  for  the  reader. 
Mill  trade. 

73.    Trade  mai  ks 555,  558   5th 

74    Unprofitable  adv   555 

1.  Upside  down 

2.  '  Don't  read  the  other  side." 

3.  "  Look  here  next  week." 

4.  "  This  space  reserved." 

5.  The  initial  scheme. 

6.  Same. 

7.  Same. 

8.  Puzzles. 


ADYERTISIN(  , 

75    Why    some    adv.    are    never 
heard  from 

76.  Why    some    think    adv.    does 

not  pay 557 

77.  Writing  an  adv 5<>.-v 

AGK 522 

1.  Energy  and  push 

2.  Probability    of      getting    our 

money. 

3    Extreme  youth. 
AGENCIES.        See     MKKCAMH.I 

AGENCIES. 
ANALYSIS. 

i     Of  mercantile  reports  . .  .557-545 
2.   Of  the  elements  of  business. 

509-535 

ANTECEDENTS  518 

i.    Indication  of  business  qualifi- 
cation. 

z.    How    past   failure  affects  fu- 
ture success. 
>ame. 

ASSETS    5^5   5->7 

i.   Real  estate 525 

1.  Incumbrances. 

2.  Notice  of  mortgages 
•$     Exemptions. 

j     Accounts  and  bills  receivable. 

526 

i     Shrinkage — per   cent,   real 
ized. 

2.  Past  due  accounts. 

3.  Proportion  to  capital 

•\.    Personal   property 

1  Disposition  and  shrinkage. 

2  Per  cent,  realized. 

^     Manufacturing  plant. 
ATTORNEYS,    FEES  FOR.. 

HAD  DEHTS 503 

BARGAINS,  HOW  OBTAIN1 

BKADSTREET'S 

BUSINESS. 

1  Ability 513 

2  Age 

3  Analysis    5. 

4 .    Antecedents 518 

5     Assets 5; 

i.    Real  estate 

Accounts  and  bill  receiv. 

3.    Personal  property 

Before  pleasure"    

7    Capital 

8.  Changes  in 

9.  Character 

10.   Chattel  mortgages  and  he: 


43° 


INDEX  TO  COMMERCIAL  CREDIT.- 


BUSINESS— (.  \wtinueJ.                  SEC. 
1 1     Competition   519 

12.  Corporations   and  joint-stock 

companies    532 

13.  Doubtful  credits 535 

14.  Economy 521 

15.  Education 516 

See  BUSINESS  EDUCATION. 

16.  Experience   512 

17.  Failures  in 502 

18.  Habits    515 

19.  Honesty 511 

20.  Industry    514 

21 .  Insurance 529 

22.  Liabilities   528 

23.  Location   510 

24.  Married  or  single 520 

25.  Nature  of 509 

2.6.  Number  of  firms 502 

27.  Partnership    530 

28.  Productive  or  non-productive.  531 

29.  Punctuality 517 

30.  Secrets 519 

31.  Various  kinds  of  dealers 534 

32.  Volume  of 503,  524 

BUSINESS   EDUCATION 516 

1.  Commerce  is  the  business  of 

the  world. 

2.  Importars    of. 

3.  Necessary  to  success  in  all  the 

walks  of  life. 

4.  Education   the   means  of    ad- 

vancement. 
CALHOUN'S       EXAMPLE      IN 

INDUSTRY   514 

CAPITAL. 

1 .  Amount  employed  in  business.  503 

2.  Combined  with  experience. .  .512 
3    Employed   in   permanent   im- 
provements     507 

4.  It  takes  capital  to  pay  bills  .  .523 

5.  Liabilities  in  proportion  to  .  .528 

6.  Turning 526 

7.  Volume  of  business  in  propor- 

tion to 524 

CAPITAL 523 

1.  Paying  bills. 

2.  How  much  capital. 

3.  Set  up  in  business  by  relatives. 

4.  Capital  a  gift. 

5    The  savings  of  past  labor. 

CHANGES  IN  BUSINESS 502 

CHARACTER  AND  HABITS.. 515 

1.  Habits,  character  and  reputa- 

tion. 

2.  How  character  affects  a  credit 

risk 


CHARACTER  AND  HAB-  SEC 

ITS  —  Continued. 

3.  Same. 

4.  The  liquor  habit  —  sports,  etc. 

5.  How   "shady  characters"  get 

credit. 
CHATTEL  MORTGAGES  .....  533 

1.  Reporting  mortgages. 

2.  Difference    between    a    mort- 

gage and  a  judgment. 

COMPETITION  ...............  5  1  q 

1.  New  business  communities. 

2.  The  life  of  trade. 

3.  Regulating  profits  —  trusts  and 

corners. 

4.  Business  secrets. 

5.  How  it  affects  the  credit  risk. 

COMMERCIAL  CRISES  .......  524 

CONVERTIBILITY    ...........  509 

CO-OPERATIVE      ASSOCIA- 

TIONS ..................  532 


519 
532 


CORNERS 
CORPORATIONS 

1.  Advantages  of  large  corpora- 

tions. 

2.  Non-liability  of  shareholders. 

3.  Small      corporations  —  why 
formed. 

4.  Bona  fide  small  companies  — 

credit  giving. 

"CRANKS"  IN  BUSINESS....  53^ 
CREDIT. 

1.  As  a  medium  of  exchange  .  .  .497 

2.  As  a  science   ...............  499 

3.  As  here  treated    ............  498 

4.  Convertibility  ..............  509 

5.  Definition  .............  497,  499 

6.  Giving  ................  5°9-535 

7.  Is  a  condition  ..............  499 

8.  Practical  credit  making  .....  40^ 

9.  Prevalence  of  ..........  499,  501 

10.  Reasons  for  study  of  ........  300 

11.  Risk  of  loss  ............  505-535 

12.  Terms  of  sale  ..............  509 

13.  The  system  ................  517 

14.  To   individuals    and  corpora- 

tions   ....................  532 

15.  Who  should  study  ........  501 

1.  Every  individual. 

2.  Every  business  man,  clerk, 

cashier  and  bookkeeper. 

3.  Every  lawyer. 

4.  Every  banker. 

5.  Every  traveling  salesman. 


4.51 


DEFINITION 

1.  Of  ability 513 

2.  Of  credit v»7.  5')<J 

>t  Advertisements     .55?.  55^    ist 

bEGREE  OF    RISK 509 

IUNTING   BILLS 526 

POUBTFUL    ACCOUNT 552 

DOUBTFUL  CREDITS 534 

i.    Risk  of  doubtful  cases. 
Mr.   Earling's  remarks. 

DUN    -v   CO 504 

ECONOMY 521 

1.  Necessary  to  success. 

2.  Savers  and  spendthrifts — the 

object  of  business. 

3.  Use  of  others'  property. 

4.  Key  to  success. 

5.  Wants  increase  faster  than  in- 

come. 
EDUCATION. 

See  BUSINESS  EIM-CATION. 
ELEMENTS  OF   BUSINESS. 

See  BUSINESS. 

ENERGY    AND    PUSH    522 

EXPERIENCE    512 

r.    Repetition  begets  skill. 

2.  What  is  experience  ? 
The  farmer  grocer. 

I     Experience  and  capital. 

5     Credit  giving. 

EXTREME   YOUTH    522 

FAILUR1 

1  Affects   future  success 518 

2  From  iSSr  to  uScn 502 

'••rcentage  of  loss 503 

4.  Probability     of     getting     our 

money  in  event  of    522 

5.  9<s    per  cent,   of   all    business 

men   fail 502 

FARMKK    G'vOCER 512 

499,  523 

GR«  >CEKY    BUSINESS 509 

H  \u: 

ER  and  HAMITS. 

HARDxVARE    BUSINESS 509 

HONESTY 597,  511 

HONESTY   511 

1  Prevalence  of  honesty. 

2  Honesty  means  success — hap- 

piness. 

3.  Looking   out   for   the  man   at 

the  other  end  of  the  bargain. 

4.  Honesty  the  only  policy. 

5.  A    cheated    customer   seldom 

returns. 

6.  The    credit    system    rests   on 

honesty. 

7.  Credit  giving. 


IDLERS    514 

INDUSTRY 5.4 

i      Necessary  to  success. 

2.  C  .'houn's  example. 

3.  Vanderbilt's  start  in  life. 

4.  The  worker  and  the  idler. 

5.  Credit  giving 
INSURANCE.. 

i     A  good  business  man's  motto. 

2.   Duty  of  debtors  to  insure. 
INTEREST. 

i     On  past  due  accounts -,_  ••> 

INVENTORY  VALUATIONS. 

5f 

1.  Accounts  and  bids  receivable.  551 

1.  Those  uncollectible. 

2.  Those  against  estates. 

3.  Those  past  due  and  in  law- 

yer's hands. 

2.  Manufacturing  plant 55" 

3.  Object  of  taking  invoice.  . 

4.  "Odds  and  ends" 54*) 

5.  Old  stock 54<j 

6.  Self-deception 540 

7.  Suspense  account 55 z. 

5.  What  is  stock  worth  5 54* 

JACK-OF-ALL-TRADES 515 

JOINT-STOCK    COMPANIES  ..552 

JUDGMENTS   

LIABILITIES   

i     Proportion     to     capital       th.- 
bargains. 

j     Worry— turning  another  cor- 
ner— the  general  rule. 
LIQUOR   HABIT,  the 515 

i      Expense  of 515 

LIVE-AND-LET-LIVEBUYEKS534 

LOANING    

LOCATION    OF    BUSINESS.  .  ..510 

i     How  it  affects  the  risk. 

2.     Manufacturing  plant. 

\     Mining  regions. 

4.    Farming  distri* 

5     In  large  citi 

6.  Small  towns. 

7.  Proximity  to  the  markets. 
s     New  states  and  territories. 

LOSS 

i .    From  bad  debts 

j     I  'ercentage  of 

LOSS    AND    GAIN     LEI"  \\ 
MARRIED   OR   SINGLE    .  , 

1.  Social   relations — indifference 

of  single  men 

2.  "Are  you  married  ?" 

3.  Different    conditions  —  differ- 

ent ambitions. 


432 


INDEX  TO  COMMERCIAL  CREDITS. 


MERCANTILE  AGENCIES  504-508 

1 .  Are  not  infallible    507 

2.  Are   they  responsible   for   re- 

ports ?   508 

3.  Beginning  of  the  system 504 

4.  Branch  offices 504 

5.  Have  increased    the  business 

of  the  world 505 

6.  How  reports  are  mode 506 

7.  Object 505 

8.  Resulted    from    the    panic    of 

1837 504 

9.  Special  reports  of 506 

10    Why  they  are  fallible 507 

1.  Changes  and  speculation. 

2.  Permanent  improvements. 

3.  Weak  features 

4.  Fees  for  attorneys 
MERCANTILE  REPORTS. 

1 .  Analysis  of ? 536~545 

2.  General  view 536 

1.  Two  propositions. 

2.  Assets  and  liabilities  equal. 
3    The  limit  of  credit. 

3.  Reports  analyzed    537-545 

4.  Special 506 

MKTASTASIO'S       COMMENT 

ON    HABIT 515 

MORTGAGES.         See     ASSETS, 

CHATTEL   MORTGAGES,  etc. 

NATURE  OF  BUSINESS 500 

i     Degree  of  risk. 

2.  Seasonable  goods. 

3.  Convertibility 

4.  Terms  of  credit. 
NELSON'S   (LORD)  SUCCESS. 517 
OBJECT. 

1.  Of  business 500,  521 

2.  Of  mercantile  agencies 505 

3.  Of  taking  an  inventory 547 

ONE  PRICE " 51-} 

ORDERS,  UNSOLICITED 534 

PANICS     See  COMMERCIAL  CRISES 
PARTNERSHIPS    530 

T.    Good    associates  —  are    part- 
ners producers  ? 
2.    Drain  for  family  expenses. 
PAST-DUE  ACCOUNTS. 

See  ASSETS 

PORTER'S  (DAVID)  SUCCESS. 514 
PREVALENCE  OF  CREDIT. 

499-  501 

PRODUCTIVE    OR    NON-PRO- 
DUCTIVE   531 

PROMISES  TO  PAY 497,  500 

PULLMAN'S   SUCCESS 514 


PUNCTUALITY  ...............  517 

1.  Punctuality,    confidence    and 

the  credit  system. 

2.  Appointments. 

3.  Wise  use  of  time. 

4.  The  trait  in  great  meu 

5.  Credit      giving  —  the     '  ?.iow 

ones." 
REASONS       FOR     STUDYING 

CREDIT   ................  soc 

REGULATING  PROF.TS  .....  519 

REPUTATION  ................  515 

RESPONSIBILITY  ............  508 

RISK 

i.    Affected    by  the    elf  meets  of 

business    .............  50 

SAFETY. 

i.   In  extending  credits  .  .  .  .500,  524 

SAVERS       AND       SPEND- 

THRIFTS ...............  521 

SEASONABLE  GOODS  ........  509 

SECRETS.  OF  BUSINESS  ....519 

"SHADY"   CHARACTERS....    515 

"SLOW  ONES"  ...............  517 

SMILES'  (SAM)  MAXIM    ......  514 

SPECIALISTS    ................  5n 

SPECULATION    ..........  507.  513 

SPECULATIVE  VENTURES  .  .513 
SPORTS  .......................  513 

STOCK. 

i.    Taking.      See  INVENTORY. 

2    Old  .  .'  .....................  549 

-5    Odds  and  ends  ............    540. 

SUSPENSE   ACCOUNT  .......  552 

TERMS  OF  SALE   .........  .  .  .500 

TRUSTS  AND  COMBINES.    ..519 
VANDERBILT'S  (CORNELIUS) 

SUCCESS  ...............  51  = 

VARIOUS    KINDS    OF    DEAL- 

ERS 

1.  Recklessness. 

2     Live-qnd-let-live  buyers. 

3.  The  "crank"  —  how  to  handle 

him. 

4.  Begging  for  credit  —  unsolicit- 

ed orders. 
VOLUME     OF    BUSINESS    IN 

UNITED   STATES  ......  503 

VOLUME  OF  BUSINESS  .....  524 

T.   Large  sales. 

2.  Greed  for  gain. 

3.  Panics-  —  causes  of. 

4.  Credit  giving  —  safety. 
WEAKNESS. 

1.  Of  creditors  ..........  .    .  .  .  .515 

2.  Of  mercantile  agencies  ......  50," 


534 


Tltls 


